MARKHAM – Cygnal Technologies this week warned investors to expect the company to take a big financial hit when it announces its 2005 results on Monday.
Based on preliminary, unaudited financial results, the company said in a release on Thursday that its EBITDA (earnings before interest, taxes, depreciation and amortization) for the three months ended December 31, 2005, excluding one-time costs related to the execution of a productivity improvement program in its Network Operations business, will be a loss of approximately $3.8 million to $4.1 million, compared to the guidance of approximately zero.
Cygnal operates as a contractor, doing installation and maintenance of telecom and cable networks and also owns equipment supplier White Radio, under its Communications Services division.
"Costs associated with the productivity program are expected to negatively impact EBITDA by a further $1.3 million, resulting in a reported EBITDA loss of approximately $5.1 to $5.4 million in the quarter," says the company.
The expected EBITDA shortfall is a result of several factors, explains the release. An impact of approximately $2.5 million is attributable to a combination of lower than expected Network Operations revenue, and lower than expected gross margins due to the revenue mix in the quarter, an increase in inventory allowance and the establishment of a warranty provision. An approximate $1.3 million impact is attributable to an increase in the allowance for doubtful accounts and other miscellaneous selling, general and administrative expenses, outlines the release.
Network Operations revenue for fiscal 2005 is expected to be $75 to $76 million, compared to the most recent guidance of $77 to $79 million. Communications Services revenue is expected to be consistent with the forecasted amount of $50 million.
While the fiscal 2005 audit is not complete, management currently anticipates recording a goodwill impairment charge of approximately $8 million for the year. The company is also evaluating its future income tax asset.
Based on Canadian generally accepted accounting principles, Cygnal anticipates that there will a reduction of the future income tax asset as at December 31, 2005.
The company will release its results on Monday morning and will hold a conference call as well.
