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Teletouch Reports 1st Quarter 2009 Fiscal Year Results on Form 10-QFORT WORTH, Texas --(Business Wire)-- Teletouch Communications, Inc. (OTC: TLLE), a leading U.S. cellular services provider and mobile electronics retailer, today reported its consolidated results for the 1st Quarter 2009 fiscal year on Form 10-Q, for the period ended August 31, 2008. "The ongoing turn-around and positive financial impact resulting from the fundamental corporate restructuring undertaken in October of last year becomes readily apparent when comparing this year's first quarter results to that of the prior year," stated T. A. "Kip" Hyde, Jr., President, COO and Director of Teletouch. "After adjusting for the one-time gain on the roaming settlement with AT&T booked in the first quarter of the 2008 fiscal year, the Company's results are now demonstrated in significantly lower SG&A expenses and improved operating margins. Specifically, after adjusting for the one-time gain, operating income for the fiscal first quarter 2009 was approximately $270,000 vs. an operating loss of approximately $643,000 in the prior year comparative period. Teletouch's adjusted EBITDA (a non-GAAP measure more fully described below) for this period also increased to a positive approximately $644,000 in the fiscal first quarter from a negative adjusted EBITDA of $226,000 in the comparative prior year period." Hyde continued, "As previously reported, our recently signed Exclusive Retailer Agreement and retail expansion with T-Mobile has thus far achieved better than expected results through our first full month of operations, and we are expecting to open more retail locations with T-Mobile in the future, for both new markets, as well as potentially in markets where we are currently restricted to exclusively providing AT&T services under our various distribution agreements. Having the opportunity to grow, expanding distribution, hiring new employees and investing in new technologies in the midst of one of the worst economic climates in memory, is solid testimony to the strength of the wireless industry as a whole." The Company is party to six (6) distribution agreements with AT&T Mobility (NYSE: T), its successors and assigns, which provide for the Company to distribute AT&T wireless services, on an exclusive basis, in major markets in Texas and Arkansas, including the Dallas/Fort Worth, Texas Metropolitan Statistical Area ("MSA"); San Antonio, Texas MSA; Austin, Texas MSA; Houston, Texas MSA; East Texas Regional MSA; and Arkansas, including primarily the Little Rock, Arkansas MSA. These distribution agreements authorize the Company to exclusively offer AT&T cellular phone service and provide billing customer services to its customers on behalf of AT&T, with identical pricing characteristics in exchange for certain compensation and fees, that are primarily in the form of revenue sharing for the core wireless services that the Company bills on behalf of AT&T, and whereby the Company retains all of the revenue and income from products and services it sells on its own behalf. The Company is responsible for all of the billing and collection of cellular charges from its customers, and remains liable to AT&T for a set percentage of all AT&T-related cellular service customer billings. The Company believes that because of the volume of business transacted with AT&T, as well as the revenue generated from AT&T, there is a significant concentration of credit and business risk involved with having AT&T as a primary vendor. The Company's largest distribution agreement with AT&T, for the Dallas/Fort Worth, Texas MSA, was amended effective September 1, 1999 with an initial term of 10 years (the "DFW Agreement"). The DFW Agreement provides for two 5 year extensions unless either party provides written notice to the other party at least 6 months prior to the expiration of the initial term or the additional renewal term, although certain billing services and other obligations continue for many years after the initial term expires, in some cases in perpetuity. That is, specifically, under the terms of its distribution agreement with AT&T, the Company is allowed to continue to service its existing subscriber base until the subscribers themselves terminate service with the Company; AT&T has no direct control over when or if a subscriber terminates its service agreements with the Company, is obligated to continue to provide services and, in fact, is prohibited from directly soliciting our customers, with substantial penalties for violations incurred (e.g., $1,000 per instance as further described below). The initial term of the DFW Agreement expires in September 2009, and the Company received the required 6 month notice from AT&T in February 2009, stating that they will not extend the DFW Agreement with the Company beyond the expiration date. As a result of the natural expiration of the DFW Agreement, the exclusivity requirements under the agreement terminate at the beginning of September 2009, which will allow the Company to expand its cellular offerings in the previously AT&T exclusive areas, under new agreements with one or more carriers. However, AT&T has indicated to the Company that it would like to maintain a long-term relationship with the Company, under new agreements that would, at a minimum, maintain the Company's exclusivity with AT&T in all of the markets that the Company currently serves under its various AT&T agreements. The Company and AT&T are currently in discussions on how to structure such new agreements, and the Company may or may not determine that maintaining an exclusive relationship with AT&T is in its best interests. Most importantly, with respect to the Company's primary distribution agreement with AT&T, Management believes that there will be no material affect on these revenues for the foreseeable future, i.e., above the impact on revenues already being recognized through customer attrition. Since the launch of the iPhone in the summer of 2007, the Company has experienced higher subscriber attrition rates due to customers wanting to acquire the iPhone. The Company has been prohibited from selling the iPhone or servicing any subscribers with an iPhone by AT&T, and has required any of the Company's customers desiring an iPhone to move their Company-provided service to AT&T's billing services platform. The Company believes these restrictions on the Company and requirement to make the Company's customers change their billing services to AT&T are in direct violation of its agreements with AT&T, including specifically the bilateral non-solicitation provision contained in such agreements which provides for a $1,000 per Subscriber (cellular number) penalty for these actions. The Company is currently in discussions with AT&T on a resolution to this issue, including appropriate compensation for such AT&T generated customer attrition. The remaining distribution agreements with AT&T have varying expiration dates through October 31, 2012. For the year ended May 31, 2008, the Company announced the following results [the Tables below present selected financial data, including certain non-GAAP measures; see filing for complete data]: Overall, the Company's core net subscriber revenues decreased approximately 3% during the period, primarily as a result of increased attrition due to the iPhone. Of particular note to understanding our business, the Company bills its customers in excess of its reportable revenues, in the form of "Gross cellular subscription billings," measured as the total recurring monthly cellular service charges invoiced to PCI's wireless subscribers. A fixed percentage of the dollars invoiced for cellular usage are retained by PCI as compensation for the services it provides to these subscribers. PCI takes full (100%) accounts receivable risk for all billings, before deducting the revenue sharing amounts that are payable under PCI's master distributor agreements with AT&T. The "Net revenue adjustment" is the total payment to AT&T for their component of the subscriber billings, and can be added back to "Total operating revenues" to better understand the Company's total annual billings. (dollars in thousands) Three Months Ended August 31, 2008 vs 2007 2008 % of Oper Rev 2007 % of Oper Rev $ Change % Change Service, rent, and maintenance revenue Cellular operations Gross cellular subscription billings $ 15,374 $ 15,804 $ (430 ) -3 % Net revenue adjustment (revenue share due AT&T) (8,866 ) (9,088 ) 222 -2 % Net revenue reported from cellular subscription billings 6,508 50 % 6,716 45 % (208 ) -3 % Other service revenue - 0 % 126 1 % (126 ) -100 % Cellular operations total service revenues: 6,508 50 % 6,842 46 % (334 ) -5 % Two-way radio operations 411 3 % 446 3 % (35 ) -8 % Other operations 82 1 % 169 0 % (87 ) -51 % Service, rent, and maintenance revenue $ 7,001 54 % $ 7,457 49 % $ (456 ) -6 % Teletouch Communications, Inc. Financial Highlights (in thousands, except shares and per share amounts) Three Months Ended August 31, 2008 2007 Change Summary Operating Results: Service, rent and maintenance revenue $ 7,001 $ 7,457 $ (456 ) Product sales revenue 5,885 7,448 (1,563 ) Total revenues 12,886 14,905 (2,019 ) Net book value of products sold (5,303 ) (6,514 ) 1,211 7,583 8,391 (808 ) Operating income (1) 270 3,181 (2,911 ) Net income (loss) (446 ) 2,091 (2,537 ) Net income (loss) applicable to common shareholders $ (446 ) $ 1,867 $ (2,313 ) Income (loss) per share applicable to common shareholders Basic $ (0.01 ) $ 0.04 $ (0.05 ) Diluted $ (0.01 ) $ 0.03 $ (0.04 ) Weighted average shares outstanding: Basic 49,051,980 48,571,545 480,435 Diluted 49,051,980 55,095,315 (6,043,335 ) Other Data: Operating income 270 3,181 (2,911 ) Less: Gain on forgiveness of trade payable obligation to AT&T (1) - (3,824 ) 3,824 Adjusted operating income (2) 270 (643 ) 913 Net income (loss) (446 ) 2,091 (2,537 ) Add back: Depreciation 374 417 (43 ) Interest expense 635 1,030 (395 ) Income tax expense 81 60 21 EBITDA 644 3,598 (2,954 ) Less: Gain on forgiveness of trade payable obligation to AT&T (1) - (3,824 ) 3,824 Add back: Stock based compensation expense 42 30 12 Adjusted EBITDA (3) 686 (196 ) 882 Selected Balance Sheet Highlights (in thousands) August 31, May 31, 2008 2008 Change Cash $ 4,466 $ 4,729 $ (263 ) Current portion of long-term debt (4) 10,145 9,727 418 Long-term debt, net of current portion 8,528 7,429 1,099 Current Assets 18,704 19,679 (975 ) Current Liabilities 27,963 28,692 (729 ) Working Capital (9,259 ) (9,013 ) (246 ) Add: Thermo Factoring Debt (4) 8,959 9,091 (132 ) Adjusted Working Capital (5) (300 ) 78 (378 ) (1) In June 2007, Teletouch recognized a one-time gain from the forgiveness of certain trade payable obligations to AT&T after reaching a settlement over disputed roaming charges. (2) Adjusted operating income means operating income less the one time gain recorded in June 2009 related to a roaming charge dispute with AT&T. Adjusted operating income is a non-GAAP measure that the Company believes allows for a better comparison of the operating results for its fiscal first quarter 2008 to its fiscal first quarter 2009. (3) Teletouch's EBITDA means loss from continuing operations before depreciation and amortization, interest expense and income tax expense. Adjusted EBITDA is EBITDA less the one time gain on the roaming charge settlement with AT&T (see (1) above) and less expense for stock-based compensation. EBITDA and Adjusted EBITDA are both non-GAAP measures that the Company believes allows for a more complete analysis of our results. (4) Includes a factoring debt obligation with Thermo Credit, LLC ("Thermo Factoring Debt") which matures in February 2010 but is classified as a current liability for GAAP purposes. The Thermo Factoring Debt outstanding was as follows: August 31, May 31, 2008 2008 Change Thermo Factoring Debt $ 8,959 $ 9,091 $ (132 ) (5) Adjusted Working Capital is a non-GAAP measure that the Company believes is a better indication of its current operating liquidity because the terms of the Thermo Factoring Debt and the business relationship with Thermo provide for a longer term financing arrangement. 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" in various places of our financial discussion. EBITDA is defined by us as net income before interest expense, income tax expense, and depreciation and amortization expense. EBITDA is not a measure of operating performance under GAAP and 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. You should also not consider EBITDA as a measure of liquidity. Moreover, since EBITDA is not a measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to similarly titled measures presented by other companies. Investors should be advised that the Company will not be fully current with all of its financial reporting requirements until it has completed its Quarterly Reports on Form 10-Q for all periods following the acquisition of PCI, up to and including the remaining current fiscal year 2009 quarterly periods. The Company expects to become current with such prior periods at or near the completion of its fiscal year 2009 Report on Form 10-K. About Teletouch Communications For over 40 years, Teletouch has offered a comprehensive suite of telecommunications products and services including cellular under the AT&T Mobility® and T-Mobile® retail brands, two-way radio, GPS-telemetry, wireless messaging and public safety/emergency response vehicle products and services throughout the U.S. Teletouch operates a chain of retail stores under the "Teletouch" brand, including service offerings for T-Mobile and its own two-way radio network. Teletouch's wholly-owned subsidiary, Progressive Concepts, Inc. ("PCI"), is a leading provider of AT&T services (voice, data and entertainment), as well as other mobile, portable and personal electronics products and services to individuals, businesses and government agencies. PCI also operates a chain of retail stores and sells under the "Hawk Electronics" brand; through Hawk-branded sub-agents; using its own direct sales force and through the Internet at various sites including: www.hawkelectronics.com and www.hawkexpress.com among others. PCI also operates a national wholesale distribution business, known as PCI Wholesale, which serves smaller cellular and automotive retailers, car dealers and rural cellular carriers throughout the country; Dealers and Retailers, see www.pciwholesale.com. Teletouch is also an equity holder in various cellular-related technology companies, including mobile applications developer/provider, Mobui Corporation - www.mobui.com. 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. |
