Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
UNTK > SEC Filings for UNTK > Form 10-Q on 15-Oct-2013All Recent SEC Filings

Show all filings for UNITEK GLOBAL SERVICES, INC.

Form 10-Q for UNITEK GLOBAL SERVICES, INC.


15-Oct-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read together with our condensed consolidated financial statements and their notes included elsewhere in this Form 10-Q. Unless the context otherwise requires, references to "we," "us," "our" and the "Company" refer to UniTek Global Services, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Statements contained in this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbor created by that Act. Such forward-looking statements are based upon assumptions by management, as of the date of this Quarterly Report, including assumptions about risks and uncertainties faced by the Company. These forward-looking statements can be identified by the use of such words as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "would," "is likely to," or "is expected to" and other similar terms. They may include comments about liquidity, potential transactions, competition within our industry, concentration of customers, loss of customers, long-term receivables, availability of capital, legal proceedings, fluctuation in interest rates, governmental regulations, and other statements contained herein that are not historical facts.
There are numerous risks and uncertainties that could cause actual results and the timing of events to differ materially from those anticipated by the forward-looking statements in this Form 10-Q. Such risks and uncertainties may give rise to future claims and increase our exposure to contingent liabilities. These risks and uncertainties arise from (among other factors):
the substantial accounting, legal and other expenses resulting from the Audit Committee's investigation of certain matters and the restatement of our financial reports, as described more fully in our 2012 Annual Report on Form 10-K ("Form 10-K");

the outcome of legal proceedings to which we are or may become a party, including a class action law suit described in the "Legal Proceeding" section, if not fully covered by insurance;

the potential for additional litigation and governmental enforcement action resulting from the improper accounting practices;

our disclosure controls and procedures, which were ineffective as of June 29, 2013, because of the material weaknesses in our internal control over financial reporting described in the Form 10-K;

our use of the percentage-of-completion method to account for revenue is subject to assumptions and variations of actual results from our assumptions may impact our profitability;

our continued ability to service our corporate indebtedness;

our ability to comply with the financial covenants under our debt agreements including maintaining certain ratios between earnings and debt;

the uncertainty regarding the adequacy of capital resources, including liquidity, and potential limited access to additional financing;

our success of converting unbilled receivables to invoices and collecting on such invoices;

general economic or business conditions nationally and in our primary markets;

the consolidation of our vendors, customers and competition;

75% of our revenues for 2012 were received from our three largest customers, including 43% from our largest single customer;

the fact that many of our largest customers have the right to either terminate their contract, or reduce the amount of work that we will perform under their contract, on relatively short notice, with or without cause;

our ability to maintain the listing of our common stock on a national securities exchange;

our ability to generate future revenues and/or earnings and our ability to manage and control costs;

the actions of competitors within our industry;

our ability to meet changing technologies;

the success of business strategies that we implement; and

the retention of key employees including skilled technicians and financial staff.

If any of our assumptions prove incorrect or should unanticipated circumstances arise, our actual results could differ materially from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors, including, but not limited to, those factors described directly above and those described in Part I, Item 1A - Risk Factors, of our Form 10-K. Readers are strongly encouraged to consider these factors when evaluating any such forward-looking statements. We undertake no obligation to publicly revise or update such forward-looking statements, except as required by law.


Business Overview
We are a leading full-service provider of permanently outsourced infrastructure services, offering an end-to-end suite of technical services to customers in the wireless telecommunications, public safety, satellite television and broadband cable industries in the United States and Canada. Our services include:
Comprehensive installation and fulfillment;

Construction and project management;

Wireless telecommunication infrastructure services; and

Wireless system integration for public safety and land mobile radio applications.

Our customers utilize our services to build and maintain their infrastructure and networks and to provide residential and commercial fulfillment services. These services are critical to our customers' ability to deliver voice, video and data services to their end users. Our customers include leading media and telecommunication companies such as DIRECTV, AT&T, Clearwire Communications, Ericsson, Sprint, T-Mobile, Comcast, Charter Communications, Time Warner Cable and Rogers Communications.
The following table presents customer concentration information as a percentage of revenues:

                             Three Months Ended        Six Months Ended
                           June 29,     June 30,    June 29,      June 30,
                             2013         2012        2013          2012         Primary Segment

Revenues from top ten
customers                     >90 %        >90 %       >90 %         >90 %
Revenues from significant
customers:
DIRECTV                        41 %         46 %        41 %          42 %         Fulfillment
                                                                                 Engineering and
AT&T                           21 %          7 %        23 %           8 %        Construction
Comcast                        12 %         18 %        11 %          18 %         Fulfillment

We have longstanding relationships with many of our customers and often provide services under master service agreements. Because our business is concentrated among relatively few major customers, our business could be negatively impacted if the amount of business we obtain from these customers is reduced, or if we complete the required work on projects and cannot replace them with similar projects.
We have actively pursued a diversification and expansion strategy in our operations in the markets we serve. Our strategy has enabled us to grow and scale our business units across a diversified set of customers, geographies and end markets by executing to the highest performance standards. We intend to leverage our performance, commitment to technology and shared services platform to continue to grow our revenues and profitability. Critical Accounting Policies and Estimates There have been no changes to the critical accounting policies and estimates disclosed in our most recently filed Form 10-K.


Summary of Financial Condition and Results of Operations Overview
The following section presents our discussion and analysis of our financial condition and results of operations for the six months ended June 29, 2013 compared to June 30, 2012. We have derived this data from our consolidated financial statements and other financial information included elsewhere in this report.
We report our results in two segments based on the services that we provide and the industries that we serve:
Our Fulfillment segment provides comprehensive installation and fulfillment services to customers in the satellite television and broadband cable industries. Revenues in this segment are primarily recurring in nature and based on predetermined rates for each type of service performed. Our two most significant customers for this segment for the six months ended June 29, 2013 were DIRECTV and Comcast.

Our Engineering and Construction segment provides infrastructure services, systems integration for public safety and land mobile radio applications, construction and project management services to customers in the wireless telecommunications and public safety industries. Revenues in this segment are primarily contract-based and are recognized primarily using the percentage-of-completion method using estimated costs incurred to-date or milestones achieved to measure progress towards completion. Our two most significant projects for this segment for the six months ended June 29, 2013 were awarded by AT&T, where we construct and upgrade wireless towers in a significant region of the northeastern United States, and by Five Star Electric and Eaton Electric, where we are designing and constructing an integrated public safety communications system at the World Trade Center.

Historical Results
We have experienced organic growth by winning new projects from our wireless customers and capturing additional market share from our broadband cable fulfillment competitors. Since September 14, 2012, the results of our Fulfillment segment also include the acquisition of Skylink LTD ("Skylink"), a provider of satellite fulfillment services in Indiana, Ohio and West Virginia. Our results of operations also reflect actions we have taken to align our operations with what we perceive as our customers' most significant areas of growth. These areas of growth include (i) growing consumer demand for wireless bandwidth and technological improvements; (ii) the continuing need for best-in-class fulfillment services by our satellite television customers; and
(iii) vendor consolidation by broadband cable service providers. In order to concentrate our presence in these areas of growth, we sold our wireline telecommunications business unit (the "Wireline Group") during the fourth quarter of 2012. We have also closed certain broadband cable fulfillment and wireless service locations that reside outside of the geographic regions where we expect the greatest amount of growth. On April 12, 2013, the Company announced that as a result of an internal investigation conducted by the Audit Committee of the Company's Board of Directors, with the assistance of outside independent counsel and a forensic accounting firm (the "Audit Committee Investigation"), it was determined that several employees of the Company's Pinnacle Wireless division engaged in fraudulent activities that resulted in improper revenue recognition. As a result of the Audit Committee Investigation, the Company concluded that certain previously issued financial statements could no longer be relied upon due to the improper revenue recognition at the Pinnacle Wireless division and certain other errors related to (i) the valuation of contingent consideration; (ii) the application of a revenue recognition policy; and (iii) classification of debt and cash overdrafts. The Company undertook a process to restate those financial statements (the "Restatement"), which it completed with the filing of its 2012 Form 10-K in August 2013. The Audit Committee Investigation and the Restatement required the Company to incur substantial costs for professional services and consultants. Such costs are presented as restatement, investigation and related costs in our discussion and analysis of results of operations.


Trends and Uncertainties
This discussion and analysis may not be indicative of our future financial condition or results of operations as a result of the following trends and uncertainties, which could materially impact our results of operations and financial condition in future periods:
Our ability to bid on new engineering and construction projects was limited during the second and third quarters of 2013 as a result of our restatement and the delayed issuance of our 2012 financial statements;

Our relationships with our customers and vendors may have been harmed as a result of our restatement, the delayed issuance of our 2012 financial statements and our inability to pay our vendors timely. This in turn could harm our ability to maintain business with existing customers, to attract new customers and to maintain the insurance, bonding and other requirements required by our customers. For example, we were notified in the second quarter of 2013 by AT&T that they would reduce the amount of wireless construction work that we forecasted we would perform for them, the impact of which is expected to be approximately $21 million less than such forecast for 2013;

We incurred significant costs to complete the Audit Committee Investigation and the restatement of our financial statements, the majority of which were incurred during the second and third quarters of 2013. We estimate that the total cost will be between $7 million and $8 million, of which $5.1 million has been incurred through June 29, 2013;

We incurred significant costs to refinance our debt during the third quarter of 2013, including the issuance to our lenders of warrants to purchase up to 3.8 million shares of our common stock at $0.01 per share. Our debt now includes higher rates of interest and other fees compared to our previous debt:

?            The interest rate paid in cash for the Amended Term Loan was
             increased by 200 basis points (for Eurodollar, or LIBOR rate loans)
             as compared to the interest rate paid in cash in 2012, and was the
             same rate paid in cash during the second quarter of 2013. An
             additional payment in kind ("PIK") interest rate of 400 basis points
             was added effective July 2013, which increases the amount of the
             loan balance but is not paid in cash until the full principal on the
             loan is repaid;


?            The interest rate on the New Revolving Loan was increased by
             approximately 675 basis points (for Eurodollar, or LIBOR rate loans)
             as compare to the revolver outstanding during 2012, and 475 basis
             points higher than the interest rate paid during the period of
             default on our Revolving Credit Agreement that was refinanced on
             July 10, 2013; and


      The Company had a FLSA collective action filed against it in February
       2008. In October 2012, a judgment was entered for the plantiffs. The
       judgment has not yet become final and appealable, but the Company intends
       to appeal it promptly as soon as it does become final and appealable. The
       Company believes that the potential loss exposure for this action is zero
       to $3.8 million and that it has accrued adequate reserves for any
       resulting loss.


      We need to improve our management of working capital within our wireless
       construction business, which if not managed well, could require us to
       borrow additional amounts. This in turn may reduce our profitability,
       cause us to become ineligible for new borrowings, and/or cause us to
       default on our debt.


Non-GAAP Financial Measurements
As appropriate, we supplement our results of operations determined in accordance with GAAP with certain non-GAAP financial measurements that we believe are useful to investors in assessing our performance. The non-GAAP financial measurement referenced in this discussion and analysis is earnings before interest, taxes, depreciation and amortization, adjusted for certain items described below ("Adjusted EBITDA"). This measurement should not be considered in isolation or as a substitute for reported net income or loss but rather as an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the provided reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of our business. We strongly encourage investors and shareholders to review our financial statements and publicly filed reports in their entirety and not rely on any single financial measure.
Adjusted EBITDA is a key indicator used by our management to evaluate operating performance of our continuing operations and to make decisions regarding compensation and other operational matters as well as by our investors and lenders in evaluating our performance. While this Adjusted EBITDA is not intended to replace any presentation included in our consolidated financial statements under generally accepted accounting principles, or GAAP, and should not be considered an alternative to operating performance, we believe this measure is useful to investors in assessing our performance with other companies in our industry. This calculation may differ in method of calculation from similarly titled measures used by other companies or from required calculations pursuant to our loan agreements. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. Adjusted EBITDA is our EBITDA adjusted for discontinued operations, stock-based compensation and other unusual or non-recurring costs, including the costs associated with the Restatement, the Audit Committee Investigation and related costs.


Results of Operations - Comparison of Three and Six Months ended June 29, 2013 and June 30, 2012
The following table summarizes our results of operations:

                                         Three Months Ended             Six Months Ended
                                       June 29,       June 30,       June 29,       June 30,
(in thousands)                           2013           2012           2013           2012

Revenues                             $  121,187     $  100,046     $  235,025     $  186,185
Cost of revenues                         99,116         81,417        194,367        154,833
Gross profit                             22,071         18,629         40,658         31,352
Selling, general and administrative
expenses                                 11,771         10,085         24,909         22,391
Expense (income) related to
contingent consideration                      -          1,667           (114 )       10,077
Restructuring charges                         -            797            479          4,806
Restatement, investigation and
related costs                             3,668              -          5,066              -
Depreciation and amortization             5,213          6,697         11,260         13,089
Operating income (loss)                   1,419           (617 )         (942 )      (19,011 )
Interest expense                          8,907          3,613         13,541          6,613
Other expense (income), net                   5           (836 )           (7 )       (1,070 )
Loss from continuing operations
before income taxes                      (7,493 )       (3,394 )      (14,476 )      (24,554 )
Income tax expense                          116             90            176             22
Loss from continuing operations          (7,609 )       (3,484 )      (14,652 )      (24,576 )
Loss from discontinued operations           (98 )       (1,970 )         (719 )       (3,899 )
Net loss                             $   (7,707 )   $   (5,454 )   $  (15,371 )   $  (28,475 )

Adjusted EBITDA                      $   10,690     $    9,539     $   16,986     $   12,088

Revenues
Revenues increased $21.1 million, or 21.1%, to $121.2 million from $100.0 million for the three months ended June 29, 2013 and June 30, 2012, respectively. For the Fulfillment segment, revenues increased $6.7 million, or 9.5%, to $77.9 million from $71.1 million for the three months ended June 29, 2013 and June 30, 2012, respectively. The increase in revenues was primarily attributable to the impact of the Skylink acquisition ($7.2 million), partially offset by lower volume from our cable fulfillment customers. For the Engineering and Construction segment, revenues increased $14.4 million, or 50%, to $43.3 million from $28.9 million for the three months ended June 29, 2013 and June 30, 2012, respectively. The increase was primarily attributable to revenue growth from our AT&T projects in the northeastern United States ($18.4 million). Revenues increased $48.8 million, or 26.2%, to $235.0 million from $186.2 million for the six months ended June 29, 2013 and June 30, 2012, respectively. For the Fulfillment segment, revenues increased $12.3 million, or 8.8%, to $152.3 million from $140.0 million for the six months ended June 29, 2013 and June 30, 2012, respectively. The increase in revenues was primarily attributable to the impact of the Skylink acquisition ($14.3 million), partially offset by lower volume from our cable fulfillment customers. For the Engineering and Construction segment, revenue increased $36.5 million, or 79.0%, to $82.7 million from $46.2 million for the six months ended June 29, 2013 and June 30, 2012, respectively. The increase was primarily attributable to revenue growth from our AT&T projects in the northeastern United States ($34.9 million). We were notified in the second quarter of 2013 by AT&T that they would reduce the amount of wireless construction work that we forecasted we would perform for them, the impact of which is expected to be approximately $21 million less than such forecast for 2013.


Gross Profit
Gross profit increased $3.4 million, or 18.5%, to $22.1 million from $18.6 million for the three months ended June 29, 2013 and June 30, 2012, respectively. Gross margin decreased to 18.2% compared to 18.6% for the three months ended June 29, 2013 and June 30, 2012, respectively. For the Fulfillment segment, gross margin increased to 20.9% compared to 20.3% for the three months ended June 29, 2013 and June 30, 2012, respectively. The increase was attributable to the impact of the Skylink acquisition. For the Engineering and Construction segment, gross margin decreased to 13.4% compared to 14.5% for the three months ended ended June 29, 2013 and June 30, 2012, respectively. The decrease was attributable to higher project ramp-up costs.
Gross profit increased $9.3 million, or 29.7%, to $40.7 million from $31.4 million for the six months ended June 29, 2013 and June 30, 2012, respectively. Gross margin increased to 17.3% compared to 16.8% for the six months ended June 29, 2013 and June 30, 2012, respectively. For the Fulfillment segment, gross margin remained essentially consistent at 19.4% compared to 19.3% for the six months ended June 29, 2013 and June 30, 2012, respectively. For the Engineering and Construction segment, gross margin increased to 13.4% compared to 9.3% for the six months ended ended June 29, 2013 and June 30, 2012, respectively. The increase was primarily attributable to revenue growth from our AT&T projects in the northeastern United States.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $1.7 million, or 16.7%, to $11.8 million from $10.1 million for the three months ended June 29, 2013 and June 30, 2012, respectively. Increases of $1.9 million were attributable to a higher provision for doubtful accounts, due to the increased mix of receivables from our Engineering and Construction segment, as well as higher insurance, personnel and professional expenses.
Selling, general and administrative expenses increased $2.5 million, or 11.2%, to $24.9 million from $22.4 million for the six months ended June 29, 2013 and June 30, 2012, respectively. Increases of $4.3 million were attributable to a higher provision for doubtful accounts, due to the increased mix of receivables from our Engineering and Construction segment, as well as higher insurance, personnel and professional expenses, partially offset by lower stock-based compensation of $1.9 million. Stock-based compensation expense for the three months ended June 30, 2012 included $1.4 million for the acceleration of RSU vesting related to the separations of the former Chief Executive Officer and the former Executive Chairman of the Board in accordance with the terms of their employment agreements.
Income or Expense related to Contingent Consideration We recognized negligible expense related to contingent consideration during the three or six months ended June 29, 2013. Expense related to contingent consideration was $1.7 million and $10.1 million for the three and six months ended June 30, 2012. The expense was related to the remeasurement of contingent consideration to fair value at each period end, which was related to the acquisition of Pinnacle Wireless, Inc. ("Pinnacle"). Using information then available, the estimated fair value of the Pinnacle earn-out increased based on
(i) the revised EBITDA forecast for the twelve months ended March 30, 2013; and
(ii) the provisions of the asset purchase agreement for Pinnacle regarding the calculation of the earn-out for that period, resulting in the recognition of expense.
Restructuring Charges
We recognized no restructuring charges during the three months ended June 29, 2013. Restructuring charges were $0.8 million for the three months ended June 30, 2012 and were related to the elimination of certain management positions and the retention of senior management during the search for our new Chief Executive Officer.
Restructuring charges were $0.5 million and $4.8 million for the six months ended June 29, 2013 and June 30, 2012, respectively. The charges for the six months ended June 29, 2013 were related to the separation of a former member of senior management. The charges for the six months ended June 30, 2012 were related to the separation of our former Chief Executive Officer, the elimination of certain management positions including the Executive Chairman and the retention of senior management during the search for our new Chief Executive Officer.


Restatement, Investigation and Related Costs Investigation and related costs were $3.7 million and $5.1 million for the three and six months ended June 29, 2013. We incurred significant costs to complete the Audit Committee Investigation and the restatement of our financial statements, the majority of which were incurred during the second and third quarters of 2013. We estimate that the total cost will be between $7 million and $8 million. No such costs were incurred during the six months ended June 30, 2012.
Depreciation and Amortization
Depreciation and amortization decreased $1.5 million, or 22.2%, to $5.2 million from $6.7 million for the three months ended June 29, 2013 and June 30, 2012, respectively. The decrease was caused by lower amortization of $1.0 million caused by intangible assets reaching the end of their amortizable lives, . . .

  Add UNTK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for UNTK - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.