Teletouch Reports Second Quarter 2012 Fiscal Year Results

Published on Tuesday, 17 January 2012 14:40 Written by TradersHuddle Staff

FORT WORTH, Texas-( Business Wire )-

Teletouch Communications, Inc. (OTCBB: TLLE), a leading U.S. wireless services, cellular, consumer electronics and public safety equipment provider, reported its consolidated results on Form 10-Q and announced financial results for its second fiscal quarter ended November 30, 2011.

2^nd Quarter Results – Financial

(as reported - including gain on AT&T settlement)

• Total operating revenues of $8.0 million
• Income from operations of $8.4 million
• EBITDA of $8.8 million
• Net income of $7.8 million
• Basic Earnings Per Share of $0.16
• Fully Diluted Earnings Per Share of $0.15

2^nd Quarter Results – Adjusted

(excluding gain on AT&T settlement & other non-cash or significant charges)

• Adjusted income from operations of $0.01 million
• Adjusted EBITDA of $0.4 million
• Adjusted net loss of $0.6 million

Year-to-Date Highlights – Financial (as Reported)

• Total operating revenues of $18.4 million
• Income from operations of $8.2 million
• EBITDA of $8.9 million
• Net income of $7.0 million
• Basic Earnings Per Share of $0.14
• Fully Diluted Earnings Per Share of $0.14

2^nd Quarter Highlights – Business

• Entered AT&T Settlement & Release Agreement
  • Settlement of all claims
  • $10 million cash and other compensation:
    • $5 million cash (received December 1, 2011)
    • $5 million forgiveness of outstanding accounts payable
  • Maximum additional $8.5 million cash for subscriber transfer fees over next 3 years
  • 3-Yr renewal of Distribution Agreement – all prior markets
  • 6-Yr Dealer Agreement – all prior markets
  • Combined Distribution and Dealer Agreements valued by Company at $25-30 million
  • Ability to sell Apple iPhone & iPad devices
• Two-Way Radio/Public Safety Equipment segment revenues increased to just over $4.6 million year-to-date through 2^nd quarter, an approximately $2.4 million or 103% increase over the same period last year;
• Additional orders of approximately $2.1 million received by Public Safety Equipment division through the date of this announcement, with expected shipment in the 3^rd and 4^th fiscal quarters;
• Wholesale distribution segment sales increased to ~$4.8 million year-to-date through November 30, 2011, an approximately $1.0 million or 24% increase over the same period last year.

“Concluding the AT&T litigation at the end of our fiscal 2^nd quarter, with a favorable outcome for the Company, paves the way for us to begin growing our core cellular business again. Obviously, entering into this comprehensive settlement with AT&T was a significant event and represents a critical turning point for Teletouch. In addition to the total expected $18.5 million cash and in-kind consideration to be received as part of this settlement, we estimate that the renewed three year Distribution Agreement and related six year Dealer Agreement will generate an additional $25-30 million incremental contribution margin to the Company over the next 3 - 6 year period, based on our historical results. Thus, with a total estimated settlement value of approximately $45-$50 million, combined with our ability to now sell the iPhone and iPad, our cellular business should stabilize and start growing again,” stated T. A. "Kip" Hyde, Jr., President, Chief Operating Officer and Director of Teletouch.

Hyde added, “Our iPhone and iPad accessories business also continues to grow, and we recently renewed and extended our exclusive distribution agreement with AFC Trident Case, a fast-growing manufacturer of protective cases for various brands of cellular handsets. In addition, we continue to work with major handset manufacturers to enter into direct distribution agreements, primarily to support the demand for cellular handsets and accessories in our wholesale distribution business. Ending the litigation with AT&T has already proven helpful to achieving this goal, and we are hopeful that we will announce our first new direct handset manufacturer relationship in the near future.”

Hyde concluded, “Also as predicted, our efforts to expand Two-Way Radio/Public Safety Equipment division sales have borne fruit, with over 100% growth rates year-to-date, and a strong closed-orders pipeline for the remainder of the fiscal year. In sum, while we will have challenges ramping up sales and subscriber growth in our core cellular business, including increased sales and marketing activities and related expenses, we will continue to aggressively manage our remaining discretionary costs through the second half of fiscal 2012, while maintaining solid growth in each of our defined business units. Lastly, on the acquisition front, we continue to see good quality candidates, and are working towards completion of our first acquisition in the coming calendar year.”

EARNINGS CONFERENCE CALL:

The Company’s fiscal second quarter 2012 earnings conference call is scheduled on January 25, 2012, at 4:15 p.m. Eastern (3:15 p.m. Central). To join, participants will call 866-901-2585 or 404-835-7099. Callers will be asked to provide their first and last names, email address and company and/or financial institution name, as applicable. Participants are advised to dial in approximately 10-15 minutes before the conference call is scheduled to begin. After information is given to the operator, participants will be placed on music-hold prior to the start of the call, then all added to call at start. After the speakers conclude their prepared remarks, the moderator will provide instructions to all calling participants on how to queue up their questions.

For the quarter ended November 30, 2011, the Company announced the following results [the Tables below present selected financial data, including certain non-GAAP measures; see Teletouch’s Form 10-Q for its quarter ended November 30, 2011 filed on January 17, 2012 for complete financials and additional information]:

Teletouch Communications, Inc.
Financial Highlights
(in thousands, except shares and per share amounts)
		Three Months Ended
		November 30,
		2011					2010					Change					% Change
Summary Operating Results:
Service and installation revenue		$	4,296				$	5,127				$	(831	)			-16.2	%
Product sales revenue			3,684					3,817					(133	)			-3.5	%
Total operating revenues			7,980					8,944					(964	)			-10.8	%
Cost of service and installation			(1,398	)				(1,520	)				122				-8.0	%
Cost of products sold			(3,423	)				(3,493	)				70				-2.0	%
Margin on service and installation revenue			2,898					3,607					(709	)			-19.7	%
Margin on product sales revenue			261					324					(63	)			-19.4	%
Margin on total revenue			3,159					3,931					(772	)			-19.6	%
Income (loss) from operations			8,417					(98	)				8,515				(F)
Net income (loss)		$	7,788				$	(705	)			$	8,493				(F)
Basic income (loss) per share of common stock		$	0.16				$	(0.01	)			$	0.17				(F)
Diluted income (loss) per share of common stock		$	0.15				$	(0.01	)			$	0.16				(F)
Weighted average shares outstanding:
Basic			48,739,368					48,739,002					366				0.0	%
Diluted			52,147,924					48,739,002					3,408,922				7.0	%
EBITDA and Adjusted EBITDA, Operating income (loss) and Net income (loss) Reconciliation:
Net income (loss)		$	7,788				$	(705	)			$	8,493				(F)
Add back:
Depreciation			356					284					72				25.4	%
Interest expense			523					551					(28	)			-5.1	%
Income tax expense			106					56					50				89.3	%
EBITDA (A)			8,773					186					8,587				4616.7	%
Adjustments:
Non-cash stock compensation expense			40					41					(1	)			-2.4	%
Severance costs			-					11					(11	)			-100.0	%
Litigation costs (AT&T arbitration) (C)			149					196					(47	)			-24.0	%
Gain on settlement with AT&T (D)			(10,000	)				-					(10,000	)			100.0	%
Management bonuses related to settlement with AT&T (E)			1,400					-					1,400				100.0	%
Total adjustments			(8,411	)				248					(8,659	)			(F)
Adjusted EBITDA (B)			362					434					(72	)			-16.6	%
Adjusted Income (Loss) from Operations Reconcilation:
Income (loss) from operations			8,417					(98	)				8,515				(F)
Total adjustments			(8,411	)				248					(8,659	)			(F)
Adjusted income from operations (B)			6					150					(144	)			-96.0	%
Adjusted Net Income (Loss) Reconciliation:
Net income (loss)		$	7,788				$	(705	)			$	8,493				(F)
Total adjustments			(8,411	)				248					(8,659	)			(F)
Adjusted net loss (B)			(623	)				(457	)				(166	)			(F)

Notes:
(A) Teletouch's EBITDA means Net income (loss) before depereciation and amortization, interest expense and income tax expense. EBITDA is non-GAAP measure that the Company believes allows for a more complete analysis of our results.
(B) Teletouch's Adjusted EBITDA, Adjusted operating income (loss) and Adjusted net income (loss) means EBITDA, Operating income (loss) and Net income (loss) before non-cash stock compensation expense and extraordinary or one time charges. These adjusted measurements are non-GAAP measure that the Company believes allows for a more comparative analysis of our results to other periods.
(C) The Company’s subsidiary, PCI, commenced binding arbitration against AT&T on 9/30/09. PCI commenced the binding arbitration to seek relief for damages PCI has incurred as AT&T has prevented PCI from selling the iPhone and other AT&T exclusive products and services that PCI has been contractually entitled to provide to its customers under its distribution agreements with AT&T. The litigation against AT&T was settled on November 23, 2011.
(D) As a result of the settlement and release agreement that was executed with AT&T on November 23, 2011, the Company recorded the initial consideration of $10,000,000 as a gain which was included in the operating income on the Company's consolidated statement of operations for the three and six months ended November 30, 2011. The initial consideration is comprised of a $5,000,000 cash payment and $5,000,000 credit against PCI's outstanding accounts payable to AT&T.
(E) The Compensation Committee of the Company's Board of Directors approved a bonus for executive and management personnel due to the successful settlement of the litigation against AT&T in November 2011 and in light of the fact that no bonuses were awarded during fiscal year 2011 due primarily to earnings impairment caused by delays in this litigation outside of the Company's control.
(F) Percent change is not provided if either the latest period or the year-ago period contains a loss.

Teletouch Communications, Inc.
Financial Highlights
(in thousands, except shares and per share amounts)
		Six Months Ended (YTD)
		November 30,
		2011					2010					Change					% Change
Summary Operating Results:
Service and installation revenue		$	8,779				$	10,862				$	(2,083	)			-19.2	%
Product sales revenue			9,620					7,059					2,561				36.3	%
Total operating revenues			18,399					17,921					478				2.7	%
Cost of service and installation			(2,877	)				(3,047	)				170				-5.6	%
Cost of products sold			(9,132	)				(6,355	)				(2,777	)			43.7	%
Margin on service and installation revenue			5,902					7,815					(1,913	)			-24.5	%
Margin on product sales revenue			488					704					(216	)			-30.7	%
Margin on total revenue			6,390					8,519					(2,129	)			-25.0	%
Income from operations			8,213					295					7,918				2684.1	%
Net income (loss)		$	7,016				$	(935	)			$	7,951				(F)
Basic income (loss) per share of common stock		$	0.14				$	(0.02	)			$	0.16				(F)
Diluted income (loss) per share of common stock		$	0.14				$	(0.02	)			$	0.16				(F)
Weighted average shares outstanding:
Basic			48,739,184					48,739,002					182				0.0	%
Diluted			51,967,097					48,739,002					3,228,095				6.6	%
EBITDA and Adjusted EBITDA, Operating income (loss) and Net income (loss) Reconciliation:
Net income (loss)		$	7,016				$	(935	)			$	7,951				(F)
Add back:
Depreciation			661					561					100				17.8	%
Interest expense			1,050					1,118					(68	)			-6.1	%
Income tax expense			147					112					35				31.3	%
EBITDA (A)			8,874					856					8,018				936.7	%
Adjustments:
Non-cash stock compensation expense			291					305					(14	)			-4.6	%
Severance costs			1					11					(10	)			-90.9	%
Litigation costs (AT&T arbitration) (C)			315					341					(26	)			-7.6	%
Gain on settlement with AT&T (D)			(10,000	)				-					(10,000	)			100.0	%
Management bonuses related to settlement with AT&T (E)			1,400					-					1,400				100.0	%
Total adjustments			(7,993	)				657					(8,650	)			(F)
Adjusted EBITDA (B)			881					1,513					(632	)			-41.8	%
Adjusted Income (Loss) from Operations Reconcilation:
Income (loss) from operations			8,213					295					7,918				2684.1	%
Total adjustments			(7,993	)				657					(8,650	)			(F)
Adjusted income from operations (B)			220					952					(732	)			-76.9	%
Adjusted Net Income (Loss) Reconciliation:
Net income (loss)		$	7,016				$	(935	)			$	7,951				(F)
Total adjustments			(7,993	)				657					(8,650	)			(F)
Adjusted net loss (B)			(977	)				(278	)				(699	)			(F)

Notes:
(A) Teletouch's EBITDA means Net income (loss) before depereciation and amortization, interest expense and income tax expense. EBITDA is non-GAAP measure that the Company believes allows for a more complete analysis of our results.
(B) Teletouch's Adjusted EBITDA, Adjusted operating income (loss) and Adjusted net income (loss) means EBITDA, Operating income (loss) and Net income (loss) before non-cash stock compensation expense and extraordinary or one time charges. These adjusted measurements are non-GAAP measure that the Company believes allows for a more comparative analysis of our results to other periods.
(C) The Company’s subsidiary, PCI, commenced binding arbitration against AT&T on 9/30/09. PCI commenced the binding arbitration to seek relief for damages PCI has incurred as AT&T has prevented PCI from selling the iPhone and other AT&T exclusive products and services that PCI has been contractually entitled to provide to its customers under its distribution agreements with AT&T. The litigation against AT&T was settled on November 23, 2011.
(D) As a result of the settlement and release agreement that was executed with AT&T on November 23, 2011, the Company recorded the initial consideration of $10,000,000 as a gain which was included in the operating income on the Company's consolidated statement of operations for the three and six months ended November 30, 2011. The initial consideration is comprised of a $5,000,000 cash payment and $5,000,000 credit against PCI's outstanding accounts payable to AT&T.
(E) The Compensation Committee of the Company's Board of Directors approved a bonus for executive and management personnel due to the successful settlement of the litigation against AT&T in November 2011 and in light of the fact that no bonuses were awarded during fiscal year 2011 due primarily to earnings impairment caused by delays in this litigation outside of the Company's control.
(F) Percent change is not provided if either the latest period or the year-ago period contains a loss.

Selected Balance Sheet Highlights
(in thousands)
		November 30,					May 31,
		2011					2011					Change					% Change
Cash		$	2,434				$	2,239				$	195				8.7	%
Settlement proceeds due from AT&T (A)			5,000					-					5,000				100.0	%
Current portion of long-term debt			5,119					4,439					680				15.3	%
Long-term debt, net of current portion			8,642					10,181					(1,539	)			-15.1	%
Current Assets			13,792					9,787					4,005				40.9	%
Current Liabilities			14,436					16,789					(2,353	)			-14.0	%
Working Capital			(644	)				(7,002	)				6,358				-90.8	%

(A) As a result of the settlement and release agreement that was executed with AT&T on November 23, 2011, the Company recorded the $5,000,000 cash payment due from AT&T as a current asset on the Company's consolidated balance sheet as of November 30, 2011

Disclosure of Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes the presentation of certain non-GAAP financial measures provides useful information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations, and that when GAAP financial measures are viewed in conjunction with the non-GAAP financial measures, investors are provided with a more meaningful understanding of the Company’s ongoing operating performance. In addition, these non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating performance. For all non-GAAP financial measures in this release, we have provided corresponding GAAP financial measures for comparative purposes.

We refer to the term “EBITDA”, Adjusted EBITDA, Adjusted income (loss) from operations and “Adjusted net income (loss)” in various places of our financial discussion. EBITDA is defined by us as net income (loss) before interest expense, income tax expense, and depreciation and amortization expense. The Company identifies its non-cash, significant and one-time charges each period, including non-cash stock compensation expense and significant litigation or restructuring costs and excludes these charges to compute certain non-GAAP adjusted operating measurements. EBITDA, Income (loss) from operations, and Net income(loss) are each adjusted by excluding the total non-cash, significant and one-time charges identified by the Company to compute Adjusted EBITDA, Adjusted income (loss) from operations and Adjusted net income (loss), respectively (the “Non-GAAP Financial Measures”). The Non-GAAP Financial Measures are not measures of operating performance under GAAP and therefore should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP nor should they be considered as a measure of liquidity. Moreover, since the Non-GAAP Financial Measures are not measurements determined in accordance with GAAP, and thus are susceptible to varying interpretations and calculations, the Non-GAAP Financial Measures, as presented, may not be comparable to similarly titled measures presented by other companies.

About Teletouch Communications

For over 47 years, Teletouch has offered a comprehensive suite of wireless telecommunications solutions, including cellular, two-way radio, GPS-telemetry and wireless messaging. Teletouch is a leading Authorized Services Provider and billing agent of AT&T (NYSE: T) products and services to consumers, businesses and government agencies, as well as an operator of its own two-way radio network and LTR systems in Texas. Teletouch operates a chain of 20 retail and authorized agent stores under the “Teletouch” and “Hawk Electronics” brands, in conjunction with its direct sales force, call center operations and various retail eCommerce websites including: www.hawkelectronics.com, www.hawkwireless.com, www.hawkexpress.com and www.shop.teletouch.com. Through its wholly owned subsidiary, Progressive Concepts, Inc., Teletouch operates a national distribution business, PCI Wholesale, primarily serving large cellular carrier agents and rural carriers, as well as auto dealers and smaller consumer electronics retailers, with product sales and support available through www.pciwholesale.com and www.pcidropship.com, among other B2B oriented websites.

Teletouch's common stock is traded Over-The-Counter under stock symbol: TLLE. Additional information about the Teletouch family of companies can be found at www.teletouch.com.

All statements from Teletouch Communications, Inc. in this news release that are not based on historical fact are "forward-looking statements" within the meaning of the PSLRA of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. While the Company’s management has based any forward-looking statements contained herein on its current expectations, the information on which such expectations were based may change. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties, and other factors, many of which are outside of our control, that could cause actual results to materially differ from such statements. Such risks, uncertainties, and other factors include, but are not necessarily limited to, those set forth under the caption “Risk Factors” in the Company’s most recent Form 10-K and 10-Q filings, and amendments thereto, as well as other public filings with the SEC since such date. The Company operates in a rapidly changing and competitive environment, and new risks may arise. Accordingly, investors should not place any reliance on forward-looking statements as a prediction of actual results. The Company disclaims any intention to, and undertakes no obligation to, update or revise any forward-looking statement.

Teletouch Communications, Inc.Amy Gossett, 800-232-3888Investor This e-mail address is being protected from spambots. You need JavaScript enabled to view it.