Revenue increases to $94 million, representing a 2.9% increase from
the Prior Year TORONTO and ENGLEWOOD, CO, May 15
/PRNewswire-FirstCall/ -- 180 Connect Inc. ("180 Connect" or the
"Company") (OTCBB: CNCT.OB, CNCTU.OB, CNCTW.OB), one of North
America's largest providers of installation, integration and
fulfillment services to the home entertainment, communication, and
home integration service industries, today released its financial
results for the first quarter ended March 31, 2008. Certain
information contained in this news release constitutes
forward-looking information, including anticipated growth and
financial performance. See "Forward-Looking Information". Selected
Financial Highlights - First Quarter Ended March 31, 2008 For the
three months ended March 31, 2008 as compared to the three months
ended March 31, 2007: First Quarter 2008 Highlights - Revenue grew
to $94.2 million, an increase of $2.6 million, or 2.9%, compared to
revenue of $91.6 million in 2007. - EBITDA from continuing
operations(2) was $0.3 million, a decrease of $3.0 million or 91.5%
compared to $3.3 million in 2007. - Total cash provided by
operating activities was $2.5 million, an increase of $3.7 million
from the cash used by operating activities of $1.2 million in 2007.
- Loss from continuing operations was $6.0 million, an improvement
of $0.2 million compared to a loss from continuing operations of
$6.2 million in 2007. - Net loss was $6.0 million unchanged
compared to 2007. - Net loss per share for the three months ended
March 31, 2008 and March 31, 2007, respectively, is as follows: -
Loss from continuing operations was $0.23 per share basic and
diluted compared to a loss from continuing operations of $0.42 per
share basic and diluted in 2007. - Net loss was $0.23 per share
basic and diluted compared to net loss of $0.41 per share basic and
diluted in 2007. Revenue in the first quarter increased to $94
million, from $92 million in 2007. This 2.9% increase reflects
continued growth resulting from higher DIRECTV volume partially
offset by modest declines in the Company's Cable, 180 Home and
Network Services businesses. DIRECTV volume increased 2.8% from the
three months ended March 31, 2007 due to the effect of the DIRECTV
rate increase implemented during the second quarter of 2007, which
was partially offset by a less favourable mix and increase in
chargebacks. The net impact of the volume, rate, mix effect, and
chargebacks was an increase in revenue of $3.6 million for the
three months ended March 31, 2008. Cable revenues in the first
quarter decreased by 6% from the three months ended March 31, 2007.
A revenue increase of 28% in Rogers Communications Inc. was offset
by decreases at certain other cable operations. Revenue in 180
Connect's Network Services business declined by 17% from the same
period in the previous year and 180 Home experienced a decline in
revenue of approximately 8% off a relatively small base. EBITDA
from continuing operations(2) was $0.3 million for the first
quarter of 2008, a decrease of 91.5% over results reported for the
same period in 2007. Looking Forward In April 2008, 180 Connect
signed a definitive merger agreement with a wholly-owned subsidiary
of The DIRECTV Group, Inc. ("DIRECTV"), the nation's leading
satellite television service. Under the terms of the merger
agreement, a subsidiary of DIRECTV will be merged with and into the
Company, with the Company continuing as the surviving corporation
and an indirect wholly-owned subsidiary of DIRECTV. DIRECTV will
acquire 100% of 180 Connect's outstanding common stock and
exchangeable shares for $1.80 per share in cash. Including the
assumption of the Company's debt outstanding the implied enterprise
value of the transaction is approximately $105 million. The
transaction is expected to close during the third quarter 2008. In
a separate transaction to which 180 Connect is not a party, UniTek
USA, LLC ("UniTek") has agreed to acquire 100% of 180 Connect's
cable services operating unit and certain DIRECTV installation
services from DIRECTV, immediately following DIRECTV's acquisition
of 180 Connect, in exchange for UniTek's satellite installation
services in New York, Burbank, California and Bloomington,
California and cash. Under the terms of the merger agreement, the
board of directors of 180 Connect, through its special committee
and with the assistance of its independent advisors, intends to
file all necessary documents related to the agreement in the month
of May. Summary Results The following is a summary of the Company's
selected consolidated data and operating information for the three
months ended March 31, 2008 and 2007 and should be read in
conjunction with the accompanying unaudited consolidated financial
statements for the three months ended March 31, 2008. Selected
Consolidated Financial and Operating Data: For the Three For the
Three Months Ended Months Ended March 31, March 31, 2008 2007 %
Change --------------------------------------------
Revenue..................... $ 94,208,200 $ 91,556,785 2.9% Direct
expenses............. 87,903,038 82,928,200 6.0%
-------------------------------------------- Direct contribution
margin(1).................. 6,305,162 8,628,585 (26.9)% General and
administrative(a).......... 6,024,905 5,037,953 19.6% Foreign
exchange loss....... - 11,138 (100.0)% Restructuring costs.........
- 275,000 (100.0)% --------------------------------------------
EBITDA(2)................... 280,257 3,304,494 (91.5)%
Depreciation................ 3,427,698 2,715,565 26.2% Amortization
of customer contracts.................. 920,033 920,376 - Other
expense: Interest and loan fees...... 1,582,132 2,976,134 (46.8)%
Loss on sale of assets...... 85,093 71,778 18.6% Loss on change in
fair value of derivative liabilities.. 35,831 2,786,391 (98.7)%
-------------------------------------------- Loss from continuing
operations before income tax expense................ (5,770,530)
(6,165,750) (6.4)% Income tax expense.......... 214,077 74,000
189.3% -------------------------------------------- Loss from
continuing operations................. (5,984,607) (6,239,750)
(4.1)% Income (loss) from discontinued operations.... (9,335)
250,683 (103.7)% -------------------------------------------- Net
loss for the period..... $ (5,993,942) $ (5,989,067) 0.1%
--------------------------------------------
-------------------------------------------- (a) General and
administrative includes stock-based compensation of $518,244 and
$0, for the three months ended March 31, 2008 and March 31, 2007,
respectively. Per Share Data Three Three Months Ended Months Ended
March 31, March 31, 2008 2007 ------------------------------ Loss
per share from continuing operations Basic and
diluted....................... $ (0.23) $ (0.42) Net loss per
share: Basic and diluted....................... $ (0.23) $ (0.41)
Weighted average number of shares outstanding: Basic and
diluted....................... 25,520,152 14,689,112
------------------------------ ------------------------------
Selected Consolidated Balance Sheet Data As of March 31, December
31, 2008 2007 ------------------------------ Cash and cash
equivalents................. $ 1,697,153 $ 366,449 Working capital
deficit................... 33,857,952 30,162,680 Total
assets.............................. 133,011,918 158,284,151 Total
debt and capital lease obligations.. 56,209,864 56,765,878 Total
shareholders' equity................ $ 16,721,990 $ 22,211,042 A
copy of the first quarter unaudited consolidated financial
statements of the Company for the three months ended March 31, 2008
is attached to this news release. The Company will be releasing its
first quarter report on May 15, 2008 which will be available on
EDGAR and the Company's website. Additional information relating to
the Company is available on EDGAR at
http://www.sec.gov/edgar.shtml, on SEDAR at http://www.sedar.com/
and on the Company's website at http://www.180connect.net/.
Non-GAAP Measures: (1) The term "Direct Contribution Margin"
consists of revenue less direct expenses and excludes general and
administrative expense, foreign exchange loss, loss on sale of
assets, depreciation, amortization of customer contracts, interest
and loan costs, loss on change in fair value of derivative
liabilities, and income tax expense. DCM, as referred to in this
news release, is a non-U.S. GAAP measure which does not have any
standardized meaning prescribed by U.S. GAAP and is therefore
unlikely to be comparable to similar measures presented by other
issuers. We believe that this term provides a better assessment of
the contribution of the field operations dealing directly with our
customers' subscribers by eliminating: (1) the general and
administrative costs that are not part of the direct costs of
generating revenue; (2) the charge for customer contracts and
depreciation which are non-cash expense items; and (3) loss on sale
of assets, and loss on change in fair value of derivative
liabilities, which are not considered to be in the normal course of
operating activity. Investors should be cautioned, however, that
DCM should not be construed as an alternative to loss from
continuing operations determined in accordance with U.S. GAAP as an
indicator of our performance. Following is a reconciliation of DCM
to the comparable U.S. GAAP measure being net loss from continuing
operations: Three Months Three Months Ended Ended March 31, March
31, 2008 2007 ------------------------------ Direct contribution
margin(1)............. $ 6,305,162 $ 8,628,585 General and
administrative................ 6,024,905 5,037,953 Foreign exchange
loss..................... - 11,138 Restructuring
costs....................... - 275,000
Depreciation.............................. 3,427,698 2,715,585
Amortization of customer contracts........ 920,033 920,376 Other
expense: Interest and loan fees.................... 1,582,132
2,976,134 Loss on sale of assets.................... 85,093 71,778
Loss on change in market value of derivative
liabilities................... 35,831 2,786,391
------------------------------ Loss from continuing operations
before income tax expense................ (5,770,530) (6,165,750)
Income tax expense 214,077 74,000 ------------------------------
Loss from continuing operations........... $ (5,984,607) $
(6,239,750) ------------------------------
------------------------------ (2) The term "EBITDA from continuing
operations" refers to loss from continuing operations before
deducting depreciation, amortization of customer contracts, loss on
sale of assets, interest and loan fees, loss on change in fair
value of derivative liabilities, and income tax expense. EBITDA
from continuing operations, as referred to in this news release, is
a non-U.S. GAAP measure which does not have any standardized
meaning prescribed by U.S. GAAP and is therefore unlikely to be
comparable to similar measures presented by other issuers.
Management believes that EBITDA from continuing operations provides
a better assessment of cash flow from our operations by
eliminating: (1) the charge for depreciation, and amortization of
customer contracts which are non-cash expense items and (2) loss on
sale of assets, and loss on change in fair market value of
derivative liabilities, which are not considered to be in the
normal course of operating activity. In addition, financial
analysts and investors use a multiple of EBITDA from continuing
operations for valuing companies within the same sector, in order
to eliminate the differences in accounting treatment from one
company to the next. Given that we are in a growth stage, we
believe the focus on EBITDA from continuing operations gives the
investor or reader of our consolidated financial statements and
MD&A more insight into the operating capabilities of management
and its utilization of our operating assets. Management further
believes that EBITDA from continuing operations is also the best
metric for measuring our valuation. Investors should be cautioned,
however, that EBITDA from continuing operations should not be
construed as an alternative to loss from continuing operations
determined in accordance with U.S. GAAP as an indicator of our
performance. Following is a reconciliation of EBITDA from
continuing operations to the comparable U.S. GAAP measure being net
loss from continuing operations: Three Months Three Months Ended
Ended March 31, March 31, 2008 2007 ------------------------------
EBITDA from continuing operations(2)...... $ 280,257 $ 3,304,494
Depreciation.............................. 3,427,698 2,715,565
Amortization of customer contracts........ 920,033 920,376 Other
expense: Interest and loan fees.................... 1,582,132
2,976,134 Loss on sale of assets.................... 85,093 71,778
Loss on change in fair value of derivative
liabilities................... 35,831 2,786,391
------------------------------ Loss from continuing operations
before income tax expense ............... (5,770,530) (6,165,750)
Income tax expense........................ 214,077 74,000
------------------------------ Loss from continuing
operations........... $ (5,984,607) $ (6,239,750)
------------------------------ ------------------------------ 180
Connect Inc. 180 Connect Inc. is one of North America's largest
providers of installation, integration and fulfillment services to
the home entertainment, communications and home integration service
industries. With more than 4,000 skilled technicians and 750
support personnel based in over 85 operating locations, 180 Connect
is well positioned as the only pure play national residential
service provider in the market. 180 Connect shares are traded under
the name of 180 Connect Inc. on the OTCBB under the symbols
CNCT.OB, CNCTU.OB and CNCTW.OB. Forward-Looking Information This
news release contains forward-looking statements which reflect
management's expectations regarding the Company's future growth,
results of operations, performance and business prospects and
opportunities. Statements about the Company's future plans and
intentions, results, levels of activity, performance, goals or
achievements or other future events constitute forward-looking
statements. Wherever possible, words such as "will be", "may",
"should", "could", "expect", "plan", "intend", "anticipate",
"believe", "estimate", "predict" or "potential" or the negative or
other variations of these words, or other similar words or phrases,
have been used to identify these forward-looking statements. These
statements reflect management's current beliefs and are based on
information currently available to management. Forward-looking
statements involve significant risk, uncertainties and assumptions.
Many factors, including those discussed under section 1A "Risk
Factors" on the Company's current Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 2008 could
cause actual results, performance or achievements to differ
materially from the results discussed or implied in the
forward-looking statements. These factors should be considered
carefully and prospective investors should not place undue reliance
on the forward-looking statements. Although the forward-looking
statements contained in this news release are based upon what
management believes to be reasonable assumptions, the Company
cannot assure investors that actual results will be consistent with
these forward-looking statements. These forward-looking statements
are made as of the date of this news release and the Company
assumes no obligation to update or revise them to reflect new
events or circumstances, except as required by law. 180 Connect
Inc. Consolidated Balance Sheets March 31, December 31, 2008 2007
------------------------------ (unaudited) Assets Current Assets
Cash and cash equivalents $ 1,697,153 $ 366,449 Accounts receivable
(less allowance for doubtful accounts of $4,723,724 and $3,750,200,
respectively) 36,614,481 48,378,339 Inventory 14,632,276 20,180,167
Restricted cash 8,494,616 10,169,108 Prepaid expenses and other
assets 5,973,681 9,378,519 ------------------------------ TOTAL
CURRENT ASSETS 67,412,207 88,472,582 Property, plant and equipment
31,588,576 34,906,750 Goodwill 11,034,723 11,034,723 Customer
contracts, net 20,465,338 21,391,257 Other assets 2,511,074
2,478,839 ------------------------------ TOTAL ASSETS $ 133,011,918
$ 158,284,151 ------------------------------
------------------------------ Liabilities and Shareholders' Equity
Current liabilities Accounts payable and accrued liabilities $
59,856,001 $ 79,115,651 Current portion of long-term debt
30,162,746 27,769,301 Fair value of derivative financial
instruments 157,999 122,168 Current portion of capital lease
obligations 11,093,413 11,628,142 ------------------------------
TOTAL CURRENT LIABILITIES 101,270,159 118,635,262 Income tax
liability 224,063 191,580 Capital lease obligations 14,795,706
17,246,267 ------------------------------ TOTAL LIABILITIES
116,289,928 136,073,109 Commitments and contingencies (Notes 5 and
12) Shareholders' Equity Common stock $.0001 par value; authorized
100,000,000, Issued and outstanding shares 25,520,152 at March 31,
2008 and December 31, 2007 2,552 2,552 Paid-in capital 130,525,123
130,096,083 Treasury stock, 500,000 shares at March 31, 2008 and
December 31, 2007 respectively (224,019) (224,019) Accumulated
deficit (113,892,539) (107,898,597) Accumulated other comprehensive
income 310,873 235,023 ------------------------------ TOTAL
SHAREHOLDERS' EQUITY 16,721,990 22,211,042
------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 133,011,918 $ 158,284,151 ------------------------------
------------------------------ 180 Connect Inc. Consolidated
Statements of Operations (Unaudited) Three Months Three Months
Ended Ended March 31, March 31, 2008 2007
------------------------------ Revenue $ 94,208,200 $ 91,556,785
Expenses Direct expenses 87,903,038 82,928,200 General and
administrative(1) 6,024,905 5,037,953 Foreign exchange loss -
11,138 Restructuring costs - 275,000 Depreciation 3,427,698
2,715,565 Amortization of customer contracts 920,033 920,376 Other
expense: Interest and loan fees 1,582,132 2,976,134 Loss on sale of
assets 85,093 71,778 Loss on change in fair value of derivative
liabilities 35,831 2,786,391 ------------------------------ Loss
from continuing operations before income tax expense (5,770,530)
(6,165,750) Income tax expense 214,077 74,000
------------------------------ Loss from continuing operations
(5,984,607) (6,239,750) Income (loss) from discontinued operations,
net of income taxes of $0 for March 31, 2008 and March 31, 2007
(9,335) 250,683 ------------------------------ Net loss for the
period $ (5,993,942) $ (5,989,067) ------------------------------
------------------------------ Net loss per share from continuing
operations: Basic and diluted $ (0.23) $ (0.42) Net loss per share:
Basic and diluted $ (0.23) $ (0.41) Weighted average number of
shares outstanding - basic and diluted 25,520,152 14,689,112 (1)
General and administrative includes stock-based compensation of
$518,244, and $0 for the three months ended March 31, 2008, and
March 31, 2007, respectively. 180 Connect Inc. Consolidated
Statements of Shareholders' Equity (Unaudited) Common Stock
Outstanding Common Paid Treasury Shares Stock in Capital Stock
-------------------------------------------------------------------------
Balances at December 31, 2007 25,520,152 $ 2,552 $ 130,096,083 $
(224,019) Issuance costs attributed to reverse merger - - (89,204)
- Stock-based compensation - - 518,244 - Foreign currency
translation adjustment - - - - Net loss - - - -
-------------------------------------------------------------------------
Balances at March 31, 2008 25,520,152 $ 2,552 $ 130,525,123 $
(224,019)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated Other Accumulated Comprehensive Deficit Income (loss)
Total ----------------------------------------------------------
Balances at December 31, 2007 $(107,898,597) $ 235,023 $ 22,211,042
Issuance costs attributed to reverse merger - - (89,204)
Stock-based compensation - - 518,244 Foreign currency translation
adjustment - 75,850 75,850 Net loss (5,993,942) - (5,993,942)
---------------------------------------------------------- Balances
at March 31, 2008 $(113,892,539) $ 310,873 $ 16,721,990
----------------------------------------------------------
---------------------------------------------------------- 180
Connect Inc. Consolidated Statements of Comprehensive Loss
(Unaudited) Three Three Months Ended Months Ended March 31, March
31, 2008 2007 ------------------------------ Net loss $ (5,993,942)
$ (5,989,067) Other comprehensive income: Foreign currency
translation 75,850 - ------------------------------ Comprehensive
loss $ (5,918,092) $ (5,989,067) ------------------------------
------------------------------ 180 Connect Inc. Consolidated
Statements of Cash Flows (Unaudited) Three Months Three Months
Ended Ended March 31, March 31, 2008 2007 ---------------
-------------- Cash provided by (used in) the following activities:
Operating Loss from continuing operations........... $ (5,984,607)
$ (6,239,750) Add (deduct) items not affecting cash: Depreciation,
amortization and impairment............................. 4,347,731
3,635,941 Non-cash interest expense............... 576,810
1,088,373 Stock-based compensation................ 518,244 - Loss
on change in fair value of derivative liabilities.................
35,831 2,786,391 Loss on sale of assets................ 85,093
71,778 Other................................. 75,130 4,171 Changes
in non-cash working capital balances related to operations:
Accounts receivable..................... 11,763,858 13,732,512
Inventory............................... 5,547,891 (600,343) Other
current assets.................... 660,389 (878,414) Insurance
premium deposits.............. 2,744,449 2,197,137 Other
assets............................ (304,799) (1,102,064) Restricted
cash......................... 1,674,492 1,481,437 Accounts payable
and accrued liabilities............................ (19,227,168)
(17,678,958) Operating cash flows from discontinued
operations................ (2,827) 291,115 ---------------
-------------- Total cash provided by (used in) operating
activities................... 2,510,517 (1,210,674) ---------------
-------------- Investing Purchase of property, plant and equipment.
(264,172) (699,342) --------------- -------------- Total cash used
in investing activities... (264,172) (699,342) ---------------
-------------- Financing Repayment of capital lease obligations....
(2,916,356) (3,491,760) Repayment of debt.........................
(2,000,001) (1,333,334) Proceeds from share issuance..............
- 29,408 --------------- -------------- Issuance costs on reverse
merger......... (89,204) - Borrowings under the Revolving credit
facility................................. 4,089,201 5,098,563
--------------- -------------- Total cash provided by (used in)
financing activities..................... (916,360) 302,877
--------------- -------------- Effect of exchange rates on cash and
cash equivalents......................... 719 (4,171)
--------------- -------------- Net increase (decrease) in cash and
cash equivalents during the period....... 1,330,704 (1,611,310)
Cash and cash equivalents, beginning of
period...................... 366,449 2,904,098 ---------------
-------------- Cash and cash equivalents, end of
period................................... $ 1,697,153 $ 1,292,788
--------------- -------------- --------------- --------------
Supplemental cash flow information: Interest paid $ 803,752 $
2,105,346 --------------- -------------- ---------------
-------------- Income taxes paid $ 124,405 $ 12,595 ---------------
-------------- --------------- -------------- Supplemental
disclosure of non-cash investing and financing transactions: For
the three months ended March 31, 2008 and March 31, 2007, the
Company entered into additional vehicle capital lease obligations
of $277,094 and $689,382, respectively. DATASOURCE: 180 Connect
Inc. CONTACT: please contact the following or visit our website at
http://www.180connect.net/; Claudia A. Di Maio, Director, Investor
Relations, TEL: (866) 995-8888, DIRECT LINE: (416) 930-7710, EMAIL:
; Devlin Lander, Integrated Corporate Relations, TEL.: (415)
292-6855
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