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8-K - FORM 8-K - Goodman Networks Incd31313d8k.htm

Exhibit 99.1

 

LOGO

Goodman Networks Reports Second Quarter Revenue

And Earnings

¡    Q2 Revenue of $186.7 million

¡    Q2 Adjusted EBITDA of $7.5 million

¡    Year-To-Date Six Month Revenue of $400.0 million

PLANO, TX, August 12, 2015 – Goodman Networks Incorporated today announced financial results for the three and six months ended June 30, 2015. The Company reported Adjusted EBITDA of $7.5 million for the three months ended June 30, 2015, an increase from ($4.8) million during the three months ended March 31, 2015 driven by our continued efforts to streamline and align costs with the demand for the business. Additionally, the Company reported gross margins of 14.2% for the three months ended June 30, 2015, an increase of 5% from the three months ended March 31, 2015.

“Our second quarter results demonstrate Goodman’s agility to adapt to changes in the marketplace,” stated Ron Hill, Goodman Networks’ executive chairman and chief executive officer. “Our efforts to right-size the business, increase automation and optimize our end to end process work flow have led to significantly improved Adjusted EBITDA and operating margins in our second quarter results. We will maintain this focus throughout the year as we continue to look for additional operational synergies to improve the business.”

Revenue was $186.7 million for the three months ended June 30, 2015, compared to $270.6 million for the three months ended June 30, 2014, a decrease of 31.0%. Revenue for the six months ended June 30, 2015 was $400.0 million compared to $527.2 million for the six months ended June 30, 2014, a decrease of 24.1%.

Infrastructure Services (IS) revenue declined 39.8% and 29.9% for the three and six months ended June 30, 2015, respectively, driven by the decrease in the volume of projects completed under our AT&T Mobility Turf Contract. Professional Services (PS) revenue decreased 32.5% and 34.8% for the three and six months ended June 30, 2015, respectively, resulting from the decrease in the volume of services provided to Alcatel-Lucent and AT&T. Field Services revenue decreased 5.3% and 3.5% for the three and six months ended June 30, 2015, respectively, driven primarily by the completion of the company’s contract with Wild Blue.

Gross margin increased for the three months ended June 30, 2015 to 14.2% from 13.4% for the comparable prior year period, as a result of efforts to streamline and align costs with the demand for the business. Gross margin for the six months ended June 30, 2015 decreased to 11.5% from 13.2% for the comparable prior year period, due primarily to the decline in revenue outpacing our cost cutting efforts in the first quarter.

Net loss was $9.7 million and $38.3 million for three and six months ended June 30, 2015, respectively, compared to a net loss of $4.9 million and $15.2 million for the three and six months ended June 30, 2014, respectively.

Adjusted EBITDA was $7.5 million for the three months ended June 30, 2015, down from $12.4 million for the three months ended June 30, 2014, a decrease of 40% driven primarily by a decline in operating income. Adjusted EBITDA was $2.7 million for the six months ended June 30, 2015 compared to $16.8 million for the six months ended June 30, 2014.

Summary financial statements for the three and six months ended June 30, 2015 are included in Exhibit A to this earnings announcement.


Summary results are presented below.

Results for the three and six months ended June 30, 2014 and 2015 (dollars in thousands)

 

     Three Months Ended June 30, 2015           Six Months Ended June 30, 2015        
     2014     2015           2014     2015        
     Amount     Amount     Change ($)     Amount     Amount     Change ($)  

Revenues:

            

Professional Services

   $ 24,415      $ 16,483      $ (7,932   $ 46,612      $ 30,404      $ (16,208

Infrastructure Services

     182,409        109,835        (72,574     357,035        250,426        (106,609

Field Services

     63,740        60,356        (3,384     123,508        119,215        (4,293
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     270,564        186,674        (83,890     527,155        400,045        (127,110

Cost of revenues:

            

Professional Services

     23,758        15,189        (8,569     44,973        29,352        (15,621

Infrastructure Services

     153,113        95,374        (57,739     299,347        227,257        (72,090

Field Services

     57,459        49,689        (7,770     113,214        97,483        (15,731
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     234,330        160,252        (74,078     457,534        354,092        (103,442

Gross profit:

            

Professional Services

     657        1,294        637        1,639        1,052        (587

Infrastructure Services

     29,296        14,461        (14,835     57,688        23,169        (34,519

Field Services

     6,281        10,667        4,386        10,294        21,732        11,438   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total gross profit

     36,234        26,422        (9,812     69,621        45,953        (23,668

Gross margin as percent of segment revenues:

            

Professional Services

     2.7     7.9       3.5     3.5  

Infrastructure Services

     16.1     13.2       16.2     9.3  

Field Services

     9.9     17.7       8.3     18.2  
  

 

 

   

 

 

     

 

 

   

 

 

   

Total gross margin

     13.4     14.2       13.2     11.5  

Selling, general and administrative expenses

     28,392        21,880        (6,512     60,462        50,173        (10,289

Restructuring expense

     2,726        2,671        (55     2,726        9,009        6,283   

Impairment expense

     —          500        500        —          2,775        2,775   

Other Operating (income) expense

     (1,569     (0     1,569        (1,569     —          1,569   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     6,685        1,371        (5,314     8,002        (16,004     (24,006

Other (income) loss

     (15     —          15        (46     —          46   

Interest income

     —          (37     (37       (73     (73

Interest expense

     11,467        11,090        (377     23,154        21,945        (1,209
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (4,767     (9,682     (4,915     (15,106     (37,876     (22,770

Income tax expense

     116        66        (50     65        397        332   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (4,883   $ (9,748   $ (4,865   $ (15,171   $ (38,273   $ (23,102
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue decreased $83.9 million and $127.1 million, for the three and six months ended June 30, 2015, respectively, compared to the comparable prior year period. These decreases in revenue were driven primarily by the decreased volume of services provided to subsidiaries of AT&T Inc. and the decline in services provided to Sprint, Inc. due to the completion of certain programs. Cost of revenue as a percentage of revenue decreased to 85.8% for the three months ended June 30, 2015 from 86.6% for the three months ended June 30, 2014 as a result of our efforts to streamline costs and improve business processes. Cost of revenues as a percentage of revenue increased to 88.5% for the six months ended June 30, 2015 from 86.8% for the six months ended June 30, 2014. Cost of revenues declined slower than revenue as a result of the deferral in our cost reduction initiatives while we awaited finalization of our customer build plans and the change in the product mix during the six months ended June 30, 2015.


Selling, general and administrative expense of $21.9 million and $50.2 million for the three and six months ended June 30, 2015, respectively, decreased $6.5 million and $10.3 million from the three and six months ended June 30, 2014, respectively, due primarily to the realization of synergies under the 2014 restructuring plan. The selling, general and administrative expense as a percentage of revenue slightly increased to 11.7% for the three months ended June 30, 2015 from 10.5% in the same period of 2014. The selling, general and administrative expense as percentage of revenue for the six months ended June 30, 2015 was 12.5%, an increase from 11.5% from the six months ended June 30, 2014. The increase for both the three and six months ended June 30, 2015 was due primarily to a decline in revenue.

Interest expense, net of $11.1 million and $21.9 million for the three and six months ended June 30, 2015, respectively, decreased $0.4 million and $1.3 million from the three and six months ended June 30, 2014, respectively, as a result of the penalty for the delayed registration of the tack-on notes incurred only during the three and six months ended June 30, 2014.

Income tax expense was $0.1 million for each of the three months ended June 30, 2015 and 2014. Income tax expense was $0.4 million for the six months ended June 30, 2015, an increase from $0.1 million from the same period in 2014.

Goodman Networks Conference Call Information

Goodman Networks will host a conference call to discuss its financial and operational results at 8:30 AM Central Time (CT) on Thursday, August 13, 2015. Dial-in information for the conference call is as follows:

 

Date:    Thursday, August 13, 2015
Time:    8:30 AM CT
Call-in number:    (855) 548-8663 or (412) 455-6154
Participant Passcode:    9248044

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

A replay of the call will be available within 24 hours of completion of the call. The replay of the call may be found at http://edge.media-server.com/m/p/wfvpc96j.

About Goodman Networks Incorporated

Goodman Networks is a leading national provider of end-to-end network infrastructure, field and professional services to the wireless telecommunications and satellite television industries. 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 merged as of July 2015, 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 June 30,      Six months ended June 30,  
     2014      2015      2014      2015  

EBITDA and Adjusted EBITDA:

           

Net loss

   $ (4,883    $ (9,748    $ (15,171    $ (38,273

Income tax expense

     116         66         65         397   

Interest expense, net

     11,467         11,053         23,154         21,872   

Depreciation and amortization

     2,856         2,898         5,724         5,776   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total EBITDA

     9,556         4,269         13,772         (10,228

Share-based compensation

     1,010         968         2,045         2,930   

Restructuring expense

     2,726         2,671         2,726         9,009   

Amortization of debt issuance costs

     (865      (937      (1,735      (1,811

Asset impairments

     —           500         —           2,775   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 12,427       $ 7,471       $ 16,808       $ 2,675   
  

 

 

    

 

 

    

 

 

    

 

 

 


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, 2015 was $1.4 billion.

Goodman Networks Contact:

 

Investor Relations:    Geoffrey Miller
   Interim Chief Financial Officer
   gemiller@goodmannetworks.com
   (972) 421-5197


Goodman Networks Incorporated

Consolidated Balance Sheets

(In Thousands, Except Share Amounts and Par Value)

 

     December 31, 2014     June 30, 2015  
           (Unaudited)  

Assets

    

Current Assets

    

Cash

   $ 76,703      $ 53,849   

Accounts receivable, net of allowances for doubtful accounts of $877 at December 31, 2014 and $194 at June 30, 2015, respectively

     66,354        35,985   

Unbilled revenue on completed projects

     16,780        15,288   

Costs in excess of billings on uncompleted projects

     81,410        47,059   

Inventories

     18,638        18,025   

Prepaid expenses and other current assets

     6,727        5,895   

Assets held for sale

     4,000        3,500   

Income tax receivable

     513        334   
  

 

 

   

 

 

 

Total current assets

     271,125        179,935   

Property and equipment, net of accumulated depreciation of $29,776 at December 31, 2014 and $32,153 at June 30, 2015, respectively

     24,638        21,684   

Deferred financing costs, net

     14,491        12,448   

Deposits and other assets

     2,821        2,656   

Insurance collateral

     12,249        15,032   

Intangible assets, net of accumulated amortization of $9,361 at December 31, 2014 and $12,270 at June 30, 2015, respectively

     19,558        16,650   

Goodwill

     69,178        69,178   
  

 

 

   

 

 

 

Total assets

   $ 414,060      $ 317,583   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Deficit

    

Current Liabilities

    

Accounts payable

   $ 94,851      $ 65,505   

Accrued expenses

     73,574        67,145   

Income taxes payable

     1,783        15   

Billings in excess of costs on uncompleted projects

     36,316        9,922   

Deferred revenue

     426        1,126   

Liabilities related to assets held for sale

     3,646        3,564   

Deferred rent - short term

     188        162   

Current portion of capital lease and notes payable obligations

     1,366        1,410   
  

 

 

   

 

 

 

Total current liabilities

     212,150        148,849   

Notes payable

     326,648        326,402   

Capital lease obligations

     1,045        730   

Accrued expenses, non-current

     8,484        7,636   

Deferred revenue, non-current

     8,874        11,740   

Deferred tax liability, non-current

     1,428        1,707   

Deferred rent

     454        442   
  

 

 

   

 

 

 

Total liabilities

     559,083        497,506   

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 June 30, 2015

     10        10   

Treasury stock, at cost, 116,318 shares at December 31, 2014 and June 30, 2015

     (11,756     (11,756

Additional paid-in capital

     18,525        21,886   

Accumulated other comprehensive income

     14        26   

Accumulated deficit

     (151,816     (190,089
  

 

 

   

 

 

 

Total shareholders’ deficit

     (145,023     (179,923
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

   $ 414,060      $ 317,583   
  

 

 

   

 

 

 


Goodman Networks Incorporated

Consolidated Statements of Operations

(In Thousands)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2015     2014     2015  

Revenues

   $ 270,564      $ 186,674      $ 527,155      $ 400,045   

Cost of revenues

     234,330        160,252        457,534        354,092   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     36,234        26,422        69,621        45,953   

Selling, general and administrative expenses

     28,392        21,880        60,462        50,173   

Restructuring expense

     2,726        2,671        2,726        9,009   

Impairment expense

     —          500        —          2,775   

Other operating income

     (1,569     —          (1,569     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     6,685        1,371        8,002        (16,004

Other income

     (15     —          (46     —     

Interest expense, net

     11,467        11,053        23,154        21,872   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (4,767     (9,682     (15,106     (37,876

Income tax expense

     116        66        65        397   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (4,883   $ (9,748   $ (15,171   $ (38,273
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income:

        

Foreign currency translation adjustments

     —          26        —          26   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (4,883   $ (9,722   $ (15,171   $ (38,247
  

 

 

   

 

 

   

 

 

   

 

 

 


Goodman Networks Incorporated

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

     Six Months Ended June 30,  
     2014     2015  

Operating Activities

    

Net loss

   $ (15,171   $ (38,273

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

    

Depreciation and amortization of property and equipment

     2,912        2,857   

Amortization of intangible assets

     2,812        2,909   

Amortization of debt discounts and deferred financing costs

     1,689        1,797   

Impairment charges

     920        2,775   

Provision of doubtful accounts

     283        (118

Deferred tax expense

     (146     279   

Share-based compensation expense

     2,045        3,361   

Accretion of contingent consideration

     265        —     

Change in fair value of contingent consideration

     (250     (726

Loss on sale of property and equipment

     136        32   

Changes in:

    

Accounts receivable

     23,812        30,487   

Unbilled revenue

     3,781        1,491   

Costs in excess of billings on uncompleted projects

     (9,274     34,351   

Inventories

     (4,744     613   

Prepaid expenses and other assets

     1,417        (1,745

Accounts payable and other liabilities

     (19,084     (31,954

Income taxes payable / receivable

     14,376        (1,589

Billings in excess of costs on uncompleted projects

     10,397        (26,402

Deferred revenue

     7,318        3,566   

Deferred rent

     —          (71
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     23,494        (16,360
  

 

 

   

 

 

 

Investing Activities

    

Purchases of property and equipment

     (6,486     (2,023

Proceeds from the sale of property and equipment

     21        11   

Change in due from shareholders

     1        2   
  

 

 

   

 

 

 

Net cash used in investing activities

     (6,464     (2,010
  

 

 

   

 

 

 

Financing Activities

    

Proceeds from lines of credit

     491,320        380,948   

Payments on lines of credit

     (491,320     (380,948

Payments on capital lease and notes payable obligations

     (4,379     (512

Payments on contingent arrangements

     (141     —     

Payments on guarantee arrangements

     —          (4,000

Payments for deferred financing costs

     (1,255     —     

Proceeds from exercise of warrants and stock options

     43        —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (5,732     (4,512
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     —          28   
  

 

 

   

 

 

 

Increase (Decrease) in cash

     11,298        (22,854

Cash, Beginning of Period

     59,439        76,703   
  

 

 

   

 

 

 

Cash, End of Period

   $ 70,737      $ 53,849