GLENTEL Inc. Reports Improved Third Quarter 2014 Results

BURNABY, BC, Nov. 5, 2014 /CNW/ - GLENTEL Inc. (TSX: GLN) today reported its results for the three and nine months ended September 30, 2014.  Financial highlights (tabular amounts in thousands of Canadian dollars, except per share data) follow.

¹ EBITDA, Adjusted EBITDA, EBIT, Adjusted net income, and Adjusted basic and diluted net income per common share are non-GAAP measures and are not defined under IFRS and, as a result, may not be comparable to similarly titled measures presented by other publicly traded entities, nor should they be construed as an alternative to other earnings measures determined in accordance with IFRS. Adjusted net income, and Adjusted basic and diluted net income per common share normalize net income/(loss) for impairment of intangible assets and goodwill, startup costs, provisions for lawsuits and settlements, restructuring charges, transaction costs, gain on repurchase of non-controlling interests, gain on sale of tower site assets, non-core assets in Australia and MSAT assets. Adjusted EBITDA normalizes EBITDA for startup costs, provision for lawsuits, restructuring charges, and transaction costs.  Refer to September 30, 2014 Management's Discussion and Analysis for reconciliation of non-GAAP measures.

"We are pleased to report solid financial results in the third quarter of 2014.  The third quarter of 2014 results reflect the positive benefits from the company's buying power, marketing focus, and earned revenues from its supply partners based on performance," stated Tom Skidmore, GLENTEL's President and Chief Executive Officer.

"The third and fourth quarters of the year have historically been the strongest quarters for GLENTEL, primarily based on North American purchasing habits.  By leveraging its marketing strength and highly trained tech savvy sales professionals with the brand power of Bell, Rogers, Verizon, and Vodafone, coupled with global smartphone brands such as Samsung and Apple, GLENTEL is well equipped to provide the success fundamentals of consumer choice and independent advice to its customers for many years to come.  The third quarter of 2014 was GLENTEL's best third quarter in history in recent years, with the Company generating $401.4 million in revenues and $20.9 million in EBITDA.  The Retail Canada Division, in particular, now appears to be recovering from the negative ramifications experiences from the Canadian government introducing the Wireless Code of Conduct in 2013, where the government effectively limited the tenure of a mobile phone contract to two years.  Retail Canada sales are up 26% compared to the third quarter of 2013 driven specifically by the solid fundamentals at our Wireless Wave, Tbooth Wireless, and WIRELESS etc. (at Costco Canada) businesses, complemented by increasing activations at both Target Mobile and Samsung branded stores.  We continue to see consumers return to our stores to upgrade their old device for a feature-rich smartphone with a competitive plan suited to their lifestyle.  With the significant network and mobile content capital investments by the Canadian carriers, we do expect smartphone penetration in Canada to continue.

"In the United States, Diamond Wireless experienced its best third quarter results in the third quarter of 2014, with sales up 28% to $104.6 million and EBITDA up 32% to $5.8 million.  The introduction of the BJ's Wholesale Club kiosks on August 1, 2013 have been an important addition to Diamond Wireless, providing GLENTEL long-term access to a committed customer base.  GLENTEL expects continued solid results from Diamond Wireless' mall-based corporate stores and BJ's wireless kiosks for the short-term and long-term future.  Wireless Zone continues to be a solid performer for GLENTEL, generating a 16% increase in revenues and a 13% increase in EBITDA in the quarter versus the third quarter of 2013.  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 Allphones relationship with its main carrier partner, Vodafone.  As part of Vodafone's growth strategy,Vodafone plans to expand its branded store footprint into more metro and regional areas, which will be beneficial to Allphones as most of its locations are situated in urban centres. Subsequent to September 30, 2014, AMT negotiated a new licensing agreement with Vodafone where AMT will manage 15 Vodafone branded retail stores under its Allphones Retail Management services (ARMS) business.  GLENTEL views the ARMS business as an area of opportunity and growth for AMT.  In the third quarter of 2014, AMT, in partnership with Tao Corporation and Globe Telecom of the Philippines, opened 9 additional Allphones locations in Manila, Philippines, thereby operating 69 locations in the Philippines at September 30, 2014.  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."

GLENTEL is committed to providing its global customer base in Canada, the United States, Australia, and the Philippines with industry leading quality, service, and integrity in its delivery of a unique customer experience and care. With the commitment of our carriers and smartphone supply partners, GLENTEL expects strong retail sales performance with profitability in the final quarter of 2014.

Consolidated highlights

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

• Sales increased 19% to $401.4 million compared to $338.6 million in 2013. EBITDA increased 65% to $20.9 million compared to $12.7 million in 2013. EBIT increased 71.8% to $10.8 million compared to $6.3 million in 2013.
• Net income for the period was $5.9 million and basic income per common share was $0.26, compared to net loss of $12.3 million and basic loss per common share of $0.55 in 2013.
• Consolidated adjusted net income and adjusted basic earnings per share were $5.5 million and $0.25, compared to $7.5 million and $0.34 in 2013.
• 9 months ended September 30, 2014 compared to respective period in 2013
• Sales increased 16% to $1,115.5 million compared to $965.1 million in 2013. EBITDA increased 13% to $43.5 million compared to $38.6 million in 2013. EBIT increased 11% to $21.9 million compared to $19.8 million in 2013.
• Net loss for the period was $5.4 million and basic loss per common share was $0.24 compared to net loss of $3.6 million and basic loss per common share of $0.16.
• Consolidated adjusted net income and adjusted basic earnings per share were $13.0 million and $0.58, compared to $14.6 million and $0.66 in 2013.

Retail Canada Division

• Sales in the 3rd quarter of 2014 were 26% higher than the same period in 2013, due to an increase in activations and upgrades as well as the Division operating 130 Target Mobile locations across Canada at September 30, 2014 versus only 82 locations at September 30, 2013.
• The 3rd quarter of 2014 was the fourth 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. Given the solid financial results in the 3rd quarter of 2014, management continues to be optimistic that in the remainder of 2014, consumers will continue 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.
• In the 3rd quarter of 2014, Costco Canada reintroduced Apple products, and in particular the Apple iPhone, into WIRELESS etc… and SANS FIL etc… after a three-year hiatus. The Division saw increased customer activity in Target stores during the back to school season while new management at Target Canada executes on a turnaround plan focusing on supply chain management, product pricing, and merchandise selection. The Division worked with Target to reduce operating expenses by adjusting the hours of operations at Target Mobile kiosks.
• Consumers continue to migrate to smartphones versus feature phones, and smartphones come with a higher selling price and higher cost of goods than traditional feature phones. Smartphones do provide for the opportunity to earn additional commissions with the sale of voice and data plans. Samsung smartphones, supported by solid product promotions, continued to be the highest-selling of all offerings, followed by Apple and others. Given that the Apple iPhone 6 and iPhone 6 Plus were not available in Canada until late-September, management expects that significant iPhone sales will be deferred to the 4th quarter of 2014.
• At September 30, 2014, the Retail Canada Division operated a total of 490 retail stores in major shopping malls and high-pedestrian-traffic locations, MacStation stores, Target retail stores, and Costco Warehouses in Canada, compared to 426 stores in 2013.
• In July 2014, the Retail Canada Division extended its multi-year agreement with Rogers to offer Rogers products and services in the Division's retail locations across Canada, such as WIRELESSWAVE, Tbooth wireless, WIRELESS etc., and Target Mobile. In July 2013, the Retail Canada Division extended its multi-year agreement with Bell to offer Bell products and services in the Division's retail locations across Canada, such as WIRELESSWAVE, Tbooth wireless, WIRELESS etc., and Target Mobile.

Retail U.S. Division – Diamond Wireless

• Sales increased in the 3rd quarter of 2014 primarily as a result of Diamond Wireless operating 155 retail stores in BJ's locations across 13 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 155 kiosks within BJ's. Diamond Wireless performed exceptionally well with its sales of the iPhone 6 and iPhone 6 Plus devices in mid-September 2014, and GLENTEL is optimistic that strong iPhone sales will continue through the remainder of 2014.
• In the 3rd quarter of 2014, Diamond Wireless opened a net of four locations, bringing the total to 200 retail corporate stores and 155 BJ's wireless kiosk locations at September 30, 2014, compared to 198 retail corporate store locations and 154 BJ's wireless kiosk locations at September 30, 2013. Diamond Wireless corporate stores operated in 18 U.S. states at September 30, 2014. Diamond operated BJ's wireless kiosks in 13 U.S. states at September 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 $47.3 million for the 3rd quarter ended September 30, 2014 compared to $28.9 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 3rd quarter of 2014, Wireless Zone closed a net of five locations, thereby operating 358 franchised and 22 corporate stores at September 30, 2014 compared to 377 franchise and 31 corporate stores at September 30, 2013. The 380 Wireless Zone locations are located in 27 U.S. states and Washington D.C.
• Despite a 7% reduction in store count, in the 3rd quarter of 2014 Wireless Zone saw strong top-line performance driven by increased activations year-over-year. This increase in activations is the culmination of Wireless Zone's continued focus on developing initiatives that attract customers to its stores, offering solid product promotions and ensuring that all sales staff are appropriately trained on all product offerings so as to provide a superior in-store customer experience. Wireless Zone management continues to emphasize increased productivity to its franchisees, and uses this metric as a key performance indicator when evaluating store performance. Given its long-standing, positive relationship with Verizon Wireless, in the 2nd quarter of 2014 Wireless Zone renewed and extended its agent agreement with Verizon Wireless.
• 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 productivity minimums and key performance indicators, remodeling stores to enhance customer experience, and increasing training directed towards franchisees and sales representatives.

Retail Australia Division – AMT (Allphones)

• The Australian retail environment continues to remain very competitive, driven particularly by Telstra, the largest national wireless carrier. Allphones has remained competitive in the 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 cash flows to supplement the exit of the Optus and Virgin Mobile Australia brands in Allphones locations. Since the exit of the Optus and Virgin Mobile Australia brands from its Australia-based Allphones locations, AMT has worked closely with Vodafone who, with its new national 4G/LTE network, is now the premier carrier brand offering of Allphones in Australia. As part of Vodafone's acquisition strategy, they are looking to expand their branded store footprint into more metro and regional areas. Subsequent to September 30, 2014, AMT negotiated a new licensing agreement with Vodafone where AMT will manage 15 Vodafone branded retail stores under the ARMS business.
• Allphones has continued to attract customers to its retail stores by leveraging its national presence in Australia consisting of 76 Allphones locations. AMT continues to operate 44 Virgin Mobile corporate retail stores through its Australian Retail Managed Services ("Australian RMS") business until the 4th quarter of 2014. Also, management continues to negotiate with AMT's current Mobile Virtual Network Operator ("MVNO") suppliers for improved product offerings and commercial constructs of existing agreements that are beneficial to Allphones. Allphones has refocused targets and incentives to shift the balance of support behind high-revenue MVNO suppliers and MVNO suppliers prepared to invest in achieving acquisition growth.
• In the 3rd quarter of 2014, AMT, in partnership with Tao Corporation of the Philippines (http://www.taocommunity.com), opened 9 additional Allphones locations in Manila, Philippines, thereby operating 69 locations in the Philippines at September 30, 2014. The Allphones Philippines initiative presents a low risk model for GLENTEL as AMT's local partners are responsible for the operating expenses and the capital expenditures associated with store locations. AMT is forecasting to operate a total of 70 Allphones locations in the Philippines by the end of 2014, and 115 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 one of the leading independent multicarrier mobile phone and telecommunications retailers in Australia. At September 30, 2014, AMT, in Australia, operated a total of 122 locations, consisting of 32 Allphones corporate, 44 Allphones franchised and licensed stores, 44 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 7 underperforming Allphones locations in the 3rd 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 September 30, 2014, AMT operated 69 mall-based Allphones locations in the Philippines, opening 9 locations during the 3rd quarter of 2014. At September 30, 2014, AMT operated and managed a total of 191 locations in Australia and the Philippines.

Business Division

• Sales decreased in the 3rd 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 3rd quarter of 2014 also saw less large project revenue recognized than during the same period in 2013. The Division continued to gain market share in the segments and locations it operates in, while continuing to face softening demand. The Division also continued to see success in securing large contracts and has strengthened its relationships with major suppliers.
• In the 3rd quarter of 2014, the Company, through its Business Division, completed five tranches of its tower site sale, resulting in net proceeds of $2.0 million for the sale of 17 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 September 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 nine months ended September 30, 2014 include Retail U.S. Division – Diamond Wireless corporate costs of $6.7 million (2013 - $5.5 million), Retail U.S. Division – Wireless Zone corporate costs of $7.8 million (2013 - $6.7 million), and Retail Australia Division – AMT (Allphones) corporate costs of $4.1 million (2013 - $3.8 million) for the nine months ended September 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 legal expenses at Diamond Wireless.

Income Taxes

• Income tax expense for the three and nine months ended September 30, 2014 was $2.5 million and $0.9 million, compared to recovery of $5.2 million and $2.3 million for the comparable periods in 2013.  The increase in income tax expense in 2014 primarily comprises changes to deferred tax assets on various Australian capital assets.

Subsequent Events

• On October 3, 2014, GLENTEL declared a quarterly dividend of $0.13 per share, for shareholders of record on October 14, 2014, paid on October 28, 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 September 30, 2014, the Company employed over 4,670 employees and operated more than 1,425 locations, including 499 locations in Canada, located in retail malls, Costco Wholesale stores, Target retail stores, and business centres; 735 corporate, franchise, and BJ's Wholesale Inc. kiosk retail locations in the United States; and 191 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.