GLENTEL Inc. reports 2014 second quarter results

BURNABY, BC, Aug. 6, 2014 /CNW/ - GLENTEL Inc. (TSX: GLN) today reported its results for the three and six months ended June 30, 2014.  Financial highlights (tabular amounts in thousands of Canadian dollars, except per share data) follow.

"We are pleased to report solid results in the second quarter of 2014 in both Canada and United States.  The quarter proved to be a concentrated focus on relationship management for GLENTEL", stated Tom Skidmore, GLENTEL's President and Chief Executive Officer.

"Leveraging the relationships which it has with its partners, GLENTEL was able to generate $372,387 million in revenues in the second quarter of 2014, a 16% increase over the same period in 2013.  This increase in revenues is attributable to many factors, and many partners, both in Canada and the U.S., and abroad.  In the second quarter of 2014, the Retail Canada Division increased its store count by 3 locations, operating 270 corporate and 217 retail managed services locations at quarter end.  GLENTEL has continued to grow organically, and remains one of the largest independent multi-carrier mobile phone operators in Canada, irrespective of increased competition in mall landscapes.  Demonstrating support for our growing business, Retail Canada Division's longest tenured partner, Rogers Communications, recently extended its multi-year carrier agreement with GLENTEL.  By securing this carrier agreement with Rogers, GLENTEL has now renewed its long-term contracts with both Rogers and Bell, covering the Canadian carrier brands, Rogers, Fido, chatr, Bell, and Virgin Mobile."

"GLENTEL continues to be excited about its partnerships with Costco, Target, and Samsung.  Glentel and Costco Wholesale Canada have worked together since 2005, with Wireless Etc. being GLENTEL's first foray into the Retail Managed Services space.  This positive and profitable relationship with Costco has fueled GLENTEL into Retail Managed Services agreements with both Target Canada and Samsung Canada.  As the partnerships we have in place continue to mature, we see much opportunity for increased profitability while providing the Canadian wireless consumer with options from both a brand and distribution perspective, and also from a wireless carrier perspective."

"In the second quarter of 2014, both Diamond Wireless and Wireless Zone renewed their respective carrier contracts with Verizon Wireless.  Verizon Wireless has been a long-time partner of both Diamond Wireless and Wireless Zone, and by renewing our long-term carrier agreements, Verizon Wireless has evidenced that it values the services which we provide to its wireless customers.  Both Diamond Wireless and Wireless Zone continue to be accretive to GLENTEL's overall earnings, and we continue to see the U.S. market as a significant growth market for the Company."

"In Australia, AMT continues to develop its relationship with its main carrier partner, Vodafone.  Over the past year, the relationship between AMT and Vodafone has continued to develop, with Allphones in Australia selling the Vodafone brand as its marque offering.  With its new 4G/LTE network, Vodafone is aggressively pursuing new customers, and AMT views this relationship as a significant growth opportunity for both Vodafone and the Allphones brand in Australia.  Through its relationships in Australia, AMT was able to develop a Retail Managed Services agreement with Globe Telecom and Tao Corporation in the Philippines, and at June 30, 2014 operated 60 Allphones locations in the Philippines, under the Allphones brand.  GLENTEL continues to view the Asia Pacific market as a significant growth opportunity for the Allphones brand and will continue to further develop, and create relationships with partners in that region."

"As some relationships grow, others end.  In the second quarter of 2014, Optus advised AMT that it would be exercising its right to terminate its Retail Managed Services agreement with AMT for the management of its 45 corporate "Virgin Mobile" branded stores as of the fourth quarter of 2014.  The termination of this management contract has resulted in a non-cash accounting impairment of $25.0 million, $20.3 million net of tax.  Although we are disappointed that our retail relationship with Optus is ending, we see many opportunities in other aspects of our global business which will mitigate the impact of the loss of this contract."

GLENTEL continues to be committed to providing its global customer base in Canada, United States, Australia, and the Philippines with industry leading quality, service, and integrity in its delivery of a unique customer experience and care.

Consolidated highlights

3 months ended June 30, 2014 compared to respective period in 2013

• Sales increased 16% to $372.4 million compared to $320.8 million in 2013. EBITDA decreased 3% to $11.6 million compared to $11.9 million in 2013.  EBIT decreased 4% to $5.6 million compared to $5.9 million in 2013.
  
  
• Net loss for the period was $15.0 million and basic loss per common share was $0.67 compared to net income of $5.4 million and basic income per common share of $0.24 in 2013.
  
  
• AMT recognized an impairment charge of $25.0 million ($20.3 million net of tax) associated with the end of its Retail Managed Services agreement with Optus for the management of its 45 Virgin Mobile branded corporate stores.  In the 2nd quarter of 2014, Optus advised AMT management that it intended to exercise its exit for convenience clause in our management agreement as it now plans to manage its 45 Virgin Mobile branded stores in-house.  Given that AMT's contract with Optus ended prior to its maturity date, the impairment charge was recognized to reflect the loss of Virgin Mobile store related cashflows following contract termination in the 4th quarter of 2014.
  
  
• Consolidated adjusted net income and adjusted basic earnings per share were $5.5 million and $0.24, compared to $4.9 million and $0.23 in 2013.

6 months ended June 30, 2014 compared to respective period in 2013

• Sales increased 14% to $ 714.1 million compared to $626.5 million in 2013. EBITDA decreased 13% to $22.6 million compared to $25.9 million in 2013.  EBIT decreased 18% to $11.1 million compared to $13.5 million in 2013.
  
  
• Net loss for the period was $11.3 million and basic loss per common share was $0.51 compared to net income of $8.7 million and basic income per common share of $0.39.
  
  
• Consolidated adjusted net income and adjusted basic earnings per share were $7.7 million and $0.35, compared to $8.2 million and $0.37 in 2013.

Retail Canada Division

• Sales in the 2nd quarter of 2014 were 3% higher than the same period in 2013 primarily due to the Division operating 127 Target Mobile locations across Canada in 2014 versus only 48 locations at June 30, 2013. The 2nd quarter of 2014 was the third complete quarter under the new Wireless Code of Conduct ("WCOC") that the Canadian government legislated in 2013. Our carrier partners began to reflect the change in wireless contract terms from three to two years in August 2013, and these changes are still reflective in softer same-store sales as consumers continue to be slow to embrace the higher handset costs, and the higher monthly plan fees. We are optimistic that, in the second half of 2014, consumers will start to adopt the newer pricing schemes that were brought on by the code of conduct. Consumers have also focused on hardware upgrades whereby they can still obtain the newest mobile device and continue to stay with their existing carrier.
  
  
• At June 30, 2014, the Retail Canada Division operated a total of 487 retail stores in major shopping malls and high-pedestrian-traffic locations, MacStation stores, Target retail stores, and Costco Warehouses in Canada, compared to 388 stores in 2013.
  
  
• In July 2014, the Retail Canada Division extended its multi-year agreement with Rogers Communications to offer Rogers products and services in the Divisions' retail locations across Canada, such as WIRELESSWAVE, Tbooth wireless, WIRELESS etc., and Target Mobile. The terms of the contract are effective July 1, 2014.

Retail U.S. Division - Diamond Wireless

• Sales increased in the 2nd quarter of 2014 primarily as a result of Diamond Wireless operating 154 retail stores in BJ's locations across 12 U.S. states. Under an agreement with BJ's, Diamond Wireless began operating kiosks in BJ's locations on August 1, 2013
  
  
• The increase in Diamond Wireless' profitability was a result of several factors that are expected to continue into the future. These factors include, but are not limited to, benefits associated with Diamond Wireless' inventory purchasing practices, a renewed focus on selling higher-margin smartphones and tablets, and a larger national U.S. footprint that now includes the 154 kiosks within BJ's.
  
  
• In the 2nd quarter of 2014, Diamond Wireless continues to deliver Verizon Wireless' EDGE Program across all of its U.S. locations. Under the EDGE Program, customers can finance a wireless device at full retail price while still maintaining a month-to-month service agreement with Verizon.  This is different from the traditional customer purchasing cycle, where phones are purchased at a subsidized price over a defined contract term.  Once the customer has elected to EDGE-UP, and has fulfilled their financing agreement with Verizon, the customer must then return their current device to Verizon and the phone must be in good working condition.  At this point, the customer has the option to either enter into another wireless device financing in the EDGE Program, or select to purchase a subsidized phone and enter into a two-year contract.  When a customer does elect to EDGE-UP, the Company is provided with an opportunity to earn an activation, and sell an accessory and warranty program for the new wireless device, all of which would not have occurred for at least 24 months under a traditional wireless agreement. The EDGE Program shows elevated signs of consumer interest with increased activations during this quarter.
  
  
• In the 2nd quarter of 2014, Diamond Wireless opened a net of three locations, bringing the total to 197 retail corporate stores and 154 BJ's wireless kiosk locations at June 30, 2014, compared to 201 retail corporate store locations at June 30, 2013 as Diamond Wireless did not assume its role with BJ's until the 3rd quarter of 2013. Diamond Wireless corporate stores operated in 18 U.S. states at June 30, 2014.  Diamond operated BJ's wireless kiosks in 12 U.S. states at June 30, 2014

Retail U.S. Division - Wireless Zone®

• Wireless Zone's revenues are derived from payments by Verizon for commissions for new activations, related services, and airtime residual payments; a wholesale business that sells phones, accessories, and general merchandise to its franchisees for resale; and franchisee fees. Wireless Zone's wholesale business had sales of $52.4 million for the 2nd quarter ended June 30, 2014 compared to $29.9 million in 2013.  Traditionally, the wholesale business operates on low margins, and this results in Wireless Zone having a lower operating income as a percentage of sales than Diamond Wireless.
  
  
• In the 2nd quarter, Wireless Zone continues to deliver Verizon Wireless' EDGE Program across all of its U.S. locations. The Wireless Zone EDGE Program provides the same benefits to its customers as Diamond Wireless' EDGE Program described above. Given the franchise system nature of ATI, the EDGE Program results in a lower average revenue per unit than the traditional program for ATI.  The EDGE Program, however, has been positively received by ATI franchisees as this program results in the franchisees retaining a larger proportion of royalties than under the traditional program.  Franchisees are seeing store-level profitability noticeably improve through the addition of the EDGE Program.
  
  
• In the 2nd quarter of 2014, Wireless Zone closed a net of eight locations, thereby operating 362 franchised and 23 corporate stores at June 30, 2014. The 385 Wireless Zone locations are located in 27 U.S. states and Washington D.C.
  
  
• In order to promote increased store sales, Wireless Zone has continued its numerous operational efforts in 2014, the top three of which were for exceeding carrier transactional minimums and Key Performance Indicators ("KPI"), remodeling stores to enhance customer experience, and increasing training directed towards franchisees and sales representatives. Additionally, new revenue streams for stores are being developed that include, but are not limited to, the nationwide launch of a customer device trade-in and repair program in all Wireless Zone stores by the end 2014.

Retail Australia Division - AMT (Allphones)

• The Australian retail environment continues to remain very competitive, driven particularly by the largest national wireless carrier. Allphones has remained competitive in both the postpaid and outright handset market; however, same-store sales declined as a result of the Virgin Mobile Australia brand and the Optus brand exiting Allphones retail stores in 2013.
  
  
• Management has been actively pursuing additional cashflows to supplement the exit of the Optus and Virgin Mobile Australia brands in Allphones locations. AMT is now marketing Vodafone, with its new national 4G/LTE network as the premier carrier brand offering of Allphones in Australia.  The Vodafone brand has proven to be resilient and has increased its marketshare in Allphones, acquiring a major portion of the activations lost by the 2013 exit of the Optus and Virgin Mobile Australia brands in the second half of 2013 and the 1st quarter of 2014. AMT expects that its relationship with Vodafone is primed for growth, as the carrier reduced its independent dealer footprint in 2013 but continued its offerings through Allphones. With its 4G/LTE network now fully operational, AMT believes Vodafone sales will increase as customers continue to be educated about the Vodafone network and product story, while benefitting from Allphones-exclusive Vodafone wireless plans.
  
  
• Allphones has continued to attract customers to its retail stores by leveraging its national presence in Australia consisting of 83 Allphones locations. AMT continues to operate 45 Virgin Mobile branded corporate retail stores through its Australian RMS business until the 4th quarter of 2014. Also, AMT has partnered with two national carriers to sell their respective Mobile Virtual Network Operator ("MVNO") offerings in Allphones locations across Australia. These MVNO offerings allow customers to participate at a lower price point than that currently available from the larger national carriers, however still providing the dependable network backbone that customers demand.
  
  
• In the 2nd quarter of 2014, AMT, in partnership with Tao Corporation of the Philippines (http://www.taocommunity.com), opened an additional eight Allphones locations in Manila, Philippines, thereby operating 60 locations in the Philippines at June 30, 2014. AMT is forecasting to operate a total of 100 Allphones locations in the Philippines by the end of 2014, and 175 locations by the end of 2015. In 2012 GLENTEL acquired AMT with the intent to utilize its experienced management team, established carrier relationships, market-leading point-of-sale system, and well-recognized brand as a beachhead to develop its presence in the Asia Pacific marketplace. GLENTEL views the Asia Pacific market as a significant area for growth, and believes the assets at AMT are well-suited to be deployed though a similar Philippines program in that region.
  
  
• AMT is the one of the leading independent multicarrier mobile phone and telecommunications retailers in Australia. At June 30, 2014, AMT, in Australia, operated a total of 130 locations, consisting of 38 Allphones corporate, 45 Allphones franchised and licensed stores, 45 Virgin Mobile corporate retail stores, and 2 Samsung locations managed through AMT's Australian RMS business. Since the exit of Optus and Virgin Mobile Australia brands from Australia-based Allphones locations in 2013, AMT has managed its store count to ensure that underperforming stores either execute on their turn-around plan or close.  The Division closed six underperforming Allphones locations in the 2nd quarter of 2014. Management has reduced its retail store exposure by eliminating underperforming stores, while ensuring that customers' product demands are still met. Management will continue to assess underperforming stores, and their respective cost structures, in 2014 as the Australian mobile phone retail market stabilizes, and will look for strategic growth opportunities based on carrier offerings. At June 30, 2014, AMT operated 60 mall-based Allphones locations in the Philippines, opening eight locations during the 2nd quarter of 2014. At June 30, 2014, AMT operated and managed a total of 190 locations in Australia and the Philippines.
  
  
• On April 7, 2014, AMT received 180-day notice from Optus of its intent to assume the management of its Virgin Mobile branded corporate stores, which are currently managed by AMT through its Australian Retail Management Services business. In Australia, Optus owns the Virgin Mobile brand rights and, as such, our understanding is that based on its corporate strategy, Optus decided to bring management of all Virgin Mobile corporate stores in-house. AMT will end its relationship managing 45 of Optus' Virgin Mobile corporate stores in the 4th quarter of 2014. Given that AMT's contract with Optus will terminate prior to its maturity date, the Division was required to perform an impairment test as at June 30, 2014.  The impairment test indicated that the loss of Virgin Mobile store-related cash flows following the contract termination in the 4th quarter of 2014 resulted in an impairment charge of $25.0 million recorded by AMT ($20.3 million, net of tax).

Business Division

• Sales decreased in the 2nd quarter of 2014 compared to the same period in 2013 as the Division no longer operates the MSAT business nor receives significant tower site lease revenue given the recent divestiture of those assets. The current environment in the industry is slow, with much anticipated growth connected to the outcome of the U.S. and Canadian governments' decisions on the future of the Keystone and Northern Gateway pipeline projects.
  
  
• In the 2nd quarter of 2014, the Company, through its Business Division, completed three tranches of its tower site sale, resulting in net proceeds of $0.9 million for the sale of 14 tower site assets and related customer agreements. These asset sales were pursuant to the August 2012 agreement with the purchaser for the sale of GLENTEL's non-core tower site assets. At June 30, 2014, all of the Company's remaining tower site assets were classified as assets held for sale in its quarterly consolidated financial statements.

Corporate

• Corporate costs include administrative, finance, information technology, and marketing services that are managed in Canada, the U.S. and Australia and are not allocated directly to the operating divisions. Management strives to leverage the divisional cost structure to maximize productivity and value from its resources.
  
  
• Corporate operating costs for the six months ended June 30, 2014 include Retail U.S. Division - Diamond Wireless corporate costs of $4.4 million (2013 - $2.6 million), Retail U.S. Division - Wireless Zone corporate costs of $5.6 million (2013 - $4.2 million), and Retail Australia Division - AMT (Allphones) corporate costs of $2.9 million (2013 - $2.6 million) for the six months ended June 30, 2014. Corporate costs increased as a result of additional staffing to support new global initiatives, an improved benefits package for staff in Canada and the U.S., and a legal provision at Diamond Wireless.

Income Taxes

• Income tax recovery for the three and six months ended June 30, 2014 was $2.5 million and $1.6 million, compared to an expense of $1.7 million and $2.9 million for the comparable periods in 2013. The reduction of income tax expenses in the current period is predominately attributable to a decrease in operating income, a reduction to deferred tax liabilities in Australia as a result of the impairment of certain AMT intangible assets, and the Company utilizing non-capital loss carry forwards.

Subsequent Events

• On July 2, 2014, GLENTEL declared a quarterly dividend of $0.13 per share, for shareholders of record on July 10, 2014, paid on July 24, 2014.

About GLENTEL

Based in Burnaby, BC, Canada, GLENTEL (TSX: GLN) is one of the leading providers of innovative and reliable wireless communications services and solutions, offering a choice of network carrier and wireless or mobile products and services to consumers and commercial customers. GLENTEL is one of the largest independent multicarrier mobile phone retailers in Canada and Australia.  In the United States, GLENTEL operates two of the six National Premium Retailers for Verizon Wireless. To its business and government customers, GLENTEL offers wireless systems and hardware, rental equipment, and system implementation services.  GLENTEL celebrated its 50th anniversary in 2013.

GLENTEL's own brands, including GLENTEL Wireless Solutions, WIRELESSWAVE, WAVE SANS FIL, Tbooth wireless, la cabine T sans fil, WIRELESS etc…, SANS FIL etc…, MacStation, iStation, Diamond Wireless, Wireless Zone®, and Allphones span four countries and three continents. At June 30, 2014, the Company employed over 4,600 employees and operated more than 1,400 locations, including 487 locations in Canada, located in retail malls, Costco Wholesale stores, Target retail stores, and business centres; 736 corporate, franchise, and BJ's Wholesale Inc. kiosk retail locations in the United States; and 190 retail locations in Australia and the Philippines.

Forward-Looking Statements

This news release contains statements about financial and operating performance of GLENTEL and future events that are forward looking. By their nature, forward-looking statements require GLENTEL to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate.  Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from that expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by the qualifications and risk factors referred to in GLENTEL's 2013 Annual Information Form, in the 2013 annual report, and any assumptions, qualifications and risk factors contained in other GLENTEL public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com). Except as required by law, GLENTEL disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.

NO STOCK EXCHANGE, SECURITIES COMMISSION, OR OTHER REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED HEREIN.

For a copy of GLENTEL's annual report or for additional information visit www.glentel.com or www.sedar.com.

SOURCE: Glentel Inc.