Teletouch Communications, Inc. (OTCBB: TLLE), a leading U.S. cellular services provider and consumer electronics distributor, reported its audited consolidated results on Form 10-K for the 2012 fiscal year ended May 31, 2012.

Fiscal Year 2012 Financial Highlights

  • Total operating revenues of $34.42 million
  • Income from operations of $6.32 million
  • EBITDA of $7.48 million
  • Net income of $4.17 million
  • Basic Earnings Per Share of $0.09
  • Diluted Earnings Per Share of $0.08
  • Reduced total liabilities by $6.59 million

4th Quarter Results - Highlights

  • Total operating revenues of $8.30 million
  • Income from operations of $0.65 million
  • EBITDA of $0.91 million
  • Net income of $0.16 million

Other Fiscal 2012 & Recent Events Highlights

1st Quarter

  • Two-Way Radio/Public Safety Equipment business breakout quarter, with segment revenues increasing to just over $2.9 million in the first quarter, an approximately $1.8 million or 164% increase over the same quarter last year;
  • Fundamental change of Company ownership and long-term stock voting control as result of former parent company, TLL Partners, LLC debt restructuring (see related detail in 8-K, filed August 18, 2011);

2nd Quarter

  • Settled the AT&T litigation, resulting in the realization of material initial, as well as additional ongoing cash compensation, new iPhone and iPad sales agreements, with 3-Yr distribution contract extensions, and new 6-yr Dealer agreements (see related detail in 8-K, filed November 28, 2011);
  • Settlement included AT&T non-interference clause, paving way for renewed Company-direct manufacturer distribution relationships;

3rd Quarter

  • Fulfilled hundreds of iPhone deliveries to customers waiting for AT&T litigation end;
  • Received the State of Texas' computations from its ongoing sales and use tax audit of Company's wholly owned subsidiary, Progressive Concepts, Inc. ("PCI") through October 2009, resulting in an accrual of a $1.88 million estimated sales tax liability. In addition, the Company recorded a sales tax liability of approximately $0.3 million related to similar tax issues that are believed to have continued beyond the current tax audit period, for a total accrual in the period of $2.18 million;
  • Teletouch's senior lender, Thermo Credit LLC ("Thermo") advised Company that it had to exit the Company's $12 million revolving credit facility prior to the original term because of certain issues it had with its own lender;
  • Amended Thermo senior debt agreement, deferring repayment of remaining note balance until May 2012, or August 2012, assuming certain criteria were met by Company, in exchange for a $2 million payment in March 2012 towards the outstanding loan balance;

4th Quarter

  • Received extensions from both of the Company's current real estate lenders which extended the maturity dates from May 2012 to August 2012;
  • Entered into distribution agreements with a variety of cellular accessory manufacturers, including, Monster Digital, Concept 101, Pure Gear®, Boston Amplifier, Cellphone-Mate, Skunk Juice®, Digital Innovations, Dicotta Cases, Wilson Electronics®, among others;
  • Expanded consumer electronics/12-volt audio product lines by entering into direct distribution agreements with manufacturers including Cadence Acoustics, Cerwin Vega®, Diamond Audio and Lightning Audio®;
  • Returned Company to profitability, having positive EBITDA and net income for the fourth quarter (EBITDA is a non-GAAP measure; see "Disclosure of Non-GAAP Financial Measures" below).

Events Subsequent to Year End

  • In June 2012, signed National Distribution Agreement with TCT Mobile Multinational Ltd to sell Alcatel OneTouch® branded cellular handsets. Initial inventory expected to be available by mid-October 2012;
  • Sold legacy two way radio and public safety equipment business to Irving, Texas-based DFW Communications, Inc. for approximately $1.5 million in August 2012;
  • Completed negotiating and executed term sheet with prospective new lender for senior revolving and term credit facilities to replace current credit facility with Thermo Credit. Although the term sheet is non-binding, diligence process started in late August 2012, with closing targeted for mid- to late September 2012.

"As we look back and reflect on all of the events that transpired during fiscal 2012, what becomes readily apparent is the total mass of activity, both set-backs and accomplishments, that has set the stage for the Company's future direction for the next several years," stated T. A. "Kip" Hyde, Jr., President, Chief Operating Officer and Director of Teletouch. "From geometric growth in our two-way radio/PSE unit, to favorably settling the AT&T litigation, to a change of control in our stock holders, to our senior credit provider, Thermo Credit LLC, having its own difficulties and pulling our credit line, to a material sales tax assessment related to issues not identified in any State of Texas sales tax audits of the Company in any prior years, to satisfying the pent-up demand for the iPhone in our customer base, to completing our first direct handset manufacturer distribution agreement and a nearly a dozen other distribution agreements, we've been busy. To put it mildly, this past fiscal year has been a wild ride."

Hyde continued, "Then add, since the end of the May 2012, the recent sale of that same two-way radio/PSE business, going through a road-show presentation process, with the subsequent term sheet negotiations and then signing, with due diligence now in process with a potential new lender, our high levels of activity continue, but are now all focused on furthering future growth for the Company. While we still have a few remaining challenges, returning Teletouch to operating profitability has been foremost among our goals, and we achieved that for the fourth quarter and year as a whole. All in all, it has been a great way to start fiscal 2013."

EARNINGS CONFERENCE CALL:

On September 5, 2012, at 4:15 p.m. EDT (3:15 p.m. CDT), Teletouch will hold the Company's fiscal year 2012 earnings conference call. To join, participants will call 866-901-2585 or 404-835-7099. Callers will be asked to provide their first and last names, with their company or financial institution name, as applicable. Participants are advised to dial in approximately 10-15 minutes before the conference is scheduled to begin. After their information is given to an operator, participants will be placed on music-hold prior to the start of the conference.

For the fiscal year and quarter ended May 31, 2012, the Company announced the following results [the Tables below present selected financial data, including certain non-GAAP measures; see Teletouch's fiscal 2012 Form 10-K filed on August 29, 2012, for complete financials and additional information]:

       
Teletouch Communications, Inc.
(in thousands, except shares and per share amounts)
 
 
Twelve Months Ended (YTD)
May 31,

May 31,

    
2012

2011

$ Change

% Change

Summary Operating Results:
Service and installation revenue $ 16,874 $ 20,575 $ (3,701 ) -18.0 %
Product sales revenue   17,544     19,849     (2,305 ) -11.6 %
Total operating revenues 34,418 40,424 (6,006 ) -14.9 %
 
Cost of service and installation (5,339 ) (6,047 ) 708 -11.7 %
Cost of products sold   (16,662 )   (18,311 )   1,649   -9.0 %
 
Margin on service and installation revenue 11,535 14,528 (2,993 ) -20.6 %
Margin on product sales revenue   882     1,538     (656 ) -42.7 %
Margin on total revenue   12,417     16,066     (3,649 ) -22.7 %
 
Income (loss) from operations 6,320 (121 ) 6,441 (G)
 
Net income (loss) $ 4,170 $ (2,501 ) $ 6,671 (G)
 
Basic income (loss) per share of common stock $ 0.09 $ (0.05 ) $ 0.14 (G)
 
Diluted income (loss) per share of common stock $ 0.08 $ (0.05 ) $ 0.13 (G)
 
Weighted average shares outstanding:
Basic 48,740,760 48,739,002 1,758 0.0 %
Diluted 51,937,318 48,739,002 3,198,316 6.6 %
 
EBITDA and Adjusted EBITDA, Operating income (loss) and Net income (loss) Reconciliation:
Net income (loss) $ 4,170 $ (2,501 ) $ 6,671 (G)
Add back:
Depreciation 1,160 1,152 8 0.7 %
Interest expense 1,880 2,227 (347 ) -15.6 %
Income tax expense   270     153     117   76.5 %
EBITDA (A) 7,480 1,031 6,449 625.5 %
Adjustments:
Non-cash stock compensation expense 301 385 (84 ) -21.8 %
Severance costs 74 321 (247 ) -76.9 %
Impairment of asset held for resale - 157 (157 ) -100.0 %
Litigation costs (AT&T arbitration) (C) 324 1,390 (1,066 ) -76.7 %
Texas sales and use tax audit accruals (D) 2,191 - 2,191 100.0 %
Gain on settlement with AT&T (E) (10,000 ) - (10,000 ) (G)
Management bonuses related to settlement with AT&T (F)   1,400     -     1,400   100.0 %
Total adjustments   (5,710 )   2,253     (7,963 ) (G)  
Adjusted EBITDA (B) 1,770 3,284 (1,514 ) -46.1 %
 

Adjusted Income (Loss) from Operations Reconciliation:

Income (loss) from operations 6,320 (121 ) 6,441 (G)
Total adjustments   (5,710 )   2,253     (7,963 ) (G)  
Adjusted income from operations (B) 610 2,132 (1,522 ) -71.4 %
 
Adjusted Net Income (Loss) Reconciliation:
Net income (loss) $ 4,170 $ (2,501 ) $ 6,671 (G)
Total adjustments   (5,710 )   2,253     (7,963 ) (G)  
Adjusted net loss (B) (1,540 ) (248 ) (1,292 ) 521.0 %
 
Notes:
(A) Teletouch's EBITDA means Net income (loss) before depreciation and amortization, interest expense and income tax expense. EBITDA is non-GAAP measure that the Company believes allows for a more complete analysis of our results.
 
(B) Teletouch's Adjusted EBITDA, Adjusted operating income (loss) and Adjusted net income (loss) means EBITDA, Operating income (loss) and Net income (loss) before non-cash stock compensation expense and significant items that do not occur on a routine basis. These adjusted measurements are non-GAAP measure that the Company believes allows for a more comparative analysis of our results to other periods.
 
(C) The Company's subsidiary, PCI, commenced binding arbitration against AT&T on 9/30/09. PCI commenced the binding arbitration to seek relief for damages PCI incurred as AT&T prevented PCI from selling the iPhone and other AT&T exclusive products and services that PCI was contractually entitled to provide to its customers under its distribution agreements with AT&T. The litigation against AT&T was settled on November 23, 2011.
 

(D) In the 3rd and 4th quarter of fiscal year 2012, the Company recorded a Texas sales and use tax liability related to PCI's sales and use tax audit which covered the period January 1, 2006, through October 31, 2009. The Company initially recorded a liability based upon preliminary results provided by the State and subsequently adjusted the total liability based upon the State's final audit assessments. PCI's final audit assessment totaled approximately $1,880,000. In addition, the Company recorded an additional Texas sales and use tax liability of approximately $311,000 for sales and use tax issues identified in the period subsequent to the recently completed sales and use tax audit period. The subsequent period covers November 1, 2009, through May 31, 2012.

 

(E) As a result of the settlement and release agreement that was executed with AT&T on November 23, 2011, the Company recorded the initial consideration of $10,000,000 as a gain, which was included in the operating income on the Company's consolidated statement of operations for fiscal year 2012. The initial consideration is comprised of a $5,000,000 cash payment and $5,000,000 credit against PCI's outstanding accounts payable to AT&T.

 
(F) The Compensation Committee of the Company's Board of Directors approved a bonus for executive and management personnel due to the successful settlement of the litigation against AT&T in November 2011 and in light of the fact that no bonuses were awarded during fiscal year 2011.
 
(G) Percent change is not provided if either the latest period or the year-ago period contains a loss or negative amount.
 
       
Teletouch Communications, Inc.
(in thousands, except shares and per share amounts)
 
 
Three Months Ended
May 31, May 31,      
2012 2011

$ Change

% Change
Summary Operating Results:
Service and installation revenue $ 4,166 $ 4,761 $ (595 ) -12.5 %
Product sales revenue   4,133     8,384     (4,251 ) -50.7 %
Total operating revenues 8,299 13,145 (4,846 ) -36.9 %
 
Cost of service and installation (1,068 ) (1,472 ) 404 -27.4 %
Cost of products sold   (3,777 )   (7,831 )   4,054   -51.8 %
 
Margin on service and installation revenue 3,098 3,289 (191 ) -5.8 %
Margin on product sales revenue   356     553     (197 ) -35.6 %
Margin on total revenue   3,454     3,842     (388 ) -10.1 %
 
Income (loss) from operations 648 (73 ) 721 (E)
 
Net Income (loss) $ 161 $ (624 ) $ 785 (E)
 
Basic income (loss) per share of common stock $ 0.00 $ (0.01 ) $ 0.02 (E)
 
Diluted income (loss) per share of common stock $ 0.00 $ (0.01 ) $ 0.01 (E)
 
Weighted average shares outstanding:
Basic 48,742,335 48,739,002 3,333 0.0 %
 
Diluted 51,729,947 48,739,002 2,990,945 6.1 %
 
EBITDA and Adjusted EBITDA, Operating income (loss) and Net income (loss) Reconciliation:
Net income (loss) $ 161 $ (624 ) $ 785 (E)
Add back:
Depreciation and amortization 261 308 (47 ) -15.3 %
Interest expense 413 555 (142 ) -25.6 %
Income tax expense (benefit)   74     (4 )   78   (E)  
EBITDA (A) 909 235 674 286.8 %
Adjustments:
Non-cash stock compensation expense 6 40 (34 ) -85.0 %
Severance costs - 28 (28 ) -100.0 %
Reversal of fiscal year management bonuses (196 ) - (196 ) (E)
Impairment of asset held for resale - 157 (157 ) -100.0 %
Litigation costs (AT&T arbitration) (C) - 605 (605 ) -100.0 %
Texas sales and use tax audit accruals (D)   44     -     44   100.0 %
Total adjustments   (146 )   830     (976 ) (E)  
Adjusted EBITDA (B) 763

 

1,065 (302 ) -28.4 %
 

Adjusted Income (Loss) from Operations Reconciliation:

Income (loss) from operations 648 (73 ) 721 (E)
Total adjustments   (146 )   830     (976 ) (E)  
Adjusted income from operations (B) 502 757 (255 ) -33.7 %
 
Adjusted Net Income (Loss) Reconciliation:
Net Income (loss) $ 161 $ (624 ) $ 785 (E)
Total adjustments   (146 )   830     (976 ) (E)  
Adjusted net income (B) 15 206 (191 ) -92.7 %
 
Notes:
(A) Teletouch's EBITDA means Net income (loss) before depreciation and amortization, interest expense and income tax expense. EBITDA is non-GAAP measure that the Company believes allows for a more complete analysis of our results.
 

(B) Teletouch's Adjusted EBITDA, Adjusted operating income (loss) and Adjusted net income (loss) means EBITDA, Operating income (loss) and Net income (loss) before non-cash stock compensation expense and significant items that do not occur on a routine basis. These adjusted measurements are non-GAAP measure that the Company believes allows for a more comparative analysis of our results to other periods.

 
(C) The Company's subsidiary, PCI, commenced binding arbitration against AT&T on 9/30/09. PCI commenced the binding arbitration to seek relief for damages PCI has incurred as AT&T has prevented PCI from selling the iPhone and other AT&T exclusive products and services that PCI has been contractually entitled to provide to its customers under its distribution agreements with AT&T. The litigation against AT&T was settled on November 23, 2011.
 

(D) In the fourth quarter of fiscal year 2012, the Company adjusted its Texas sales and use tax liability related to PCI's sales and use tax audit covering the period January 1, 2006, through October 31, 2009. The adjustment was based upon the final assessments provided by the State which totaled approximately $1,880,000. In addition, the Company recorded an additional Texas sales and use tax liability for sales and use tax issues identified in the period subsequent to the recently completed sales and use tax audit period. The subsequent period covers November 1, 2009, through May 31, 2012. As of May 31, 2012, the Company's accruals related to the Texas sales and use tax issues totaled approximately $2,191,000.

 
(E) Percent change is not provided if either the latest period or the year-ago period contains a loss or negative amount.
 
       
Selected Balance Sheet Highlights
(in thousands)
 
 
May 31, May 31,
2012 2011

$ Change

% Change
Cash $ 1,973 $ 2,239 $ (266 ) -11.9 %
Current portion of long-term debt 10,932 4,439 6,493 146.3 %
Long-term debt, net of current portion - 10,181 (10,181 ) -100.0 %
 
Total liabilities 20,576 27,170 (6,594 ) -24.3 %
 
Current Assets 8,814 9,787 (973 ) -9.9 %
Current Liabilities   20,476     16,789     3,687   22.0 %
Working Capital (11,662 ) (7,002 ) (4,660 ) 66.6 %
 

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," Adjusted EBITDA, Adjusted income (loss) from operations and "Adjusted net income (loss)" in various places of our financial discussion. EBITDA is defined by us as net income (loss) before interest expense, income tax expense, and depreciation and amortization expense. The Company identifies its non-cash, significant and one-time charges each period, including non-cash stock compensation expense and significant litigation or restructuring costs and excludes these charges to compute certain non-GAAP adjusted operating measurements. EBITDA, Income (loss) from operations, and Net income (loss) are each adjusted by excluding the total non-cash, significant and one-time charges identified by the Company to compute Adjusted EBITDA, Adjusted income (loss) from operations and Adjusted net income (loss), respectively (the "Non-GAAP Financial Measures"). The Non-GAAP Financial Measures are not measures of operating performance under GAAP and therefore 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 nor should they be considered as a measure of liquidity. Moreover, since the Non-GAAP Financial Measures are not measurements determined in accordance with GAAP, and thus are susceptible to varying interpretations and calculations, the Non-GAAP Financial Measures, as presented, may not be comparable to similarly titled measures presented by other companies.

About Teletouch Communications

For over 48 years, Teletouch has offered a comprehensive suite of wireless telecommunications solutions, including cellular, two-way radio, GPS-telemetry and wireless messaging. Today, Teletouch is a leading Authorized Service Provider and billing agent of AT&T (NYSE: T) products and services to consumers, businesses and government agencies, operating a chain of 11 retail and authorized agent stores in North and Central Texas under its "Hawk Electronics" brand, in conjunction with its direct sales force, call center operations and various retail eCommerce websites, including: www.hawkelectronics.com, www.hawkwireless.com and www.hawkexpress.com.

Through its wholly owned subsidiary, Progressive Concepts, Inc., Teletouch operates a national distribution business, PCI Wholesale, primarily serving Tier 1 (AT&T, T-Mobile, Verizon, Sprint) cellular carrier agents, Tier 2, Tier 3 and rural carriers, as well as auto dealers and smaller consumer electronics retailers, with product sales and support available through www.pciwholesale.com and www.pcidropship.com, among other B2B oriented websites.

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.

Teletouch Communications, Inc.
Investor Relations:
Amy Gossett, 800-232-3888
investors@teletouch.com