MARKHAM – Equipment supplier and network solutions company Cygnal Technologies reported a better second quarter, but still came in at a loss.
Revenues were $31.8 million for the quarter ended June 30th, 2005, an increase of 7% from Q2 2004. Gross margin for the quarter was 21.8%, up from 18.7% a year earlier. EBITDA was a loss of $1.8 million, compared to $3.2 million in the same quarter in 2004.
Net loss in the second quarter was $1.7 million, or $0.06 per share, compared to a loss of $2.7 million or $0.12 per share in Q2 2004. Operating activities provided $1.4 million of cash in Q2 2005, and used $3.8 million of cash the previous year.
"In the second quarter we continued to make good progress in rebuilding sales momentum in our network operations business, while at the same time adjusting to anticipated revenue declines in our communications services business as a result of selling less discounted product," said Gerald Hurlow, chairman and CEO of Cygnal.
“In the second quarter we initiated execution of a cost reduction plan in the network operations business. We have continued to build and refine this program and expect to finalize the full plan by the end of the third quarter and to initiate execution of all aspects of this plan in October. We have identified specific cost reduction opportunities of just over $7 million per year and our goal is to fully execute programs to deliver these savings by mid-first quarter 2006."
Network operations revenue was $19.4 million, up $4.8 million or 32.9% from revenues of $14.6 million a year earlier. In Cygnal’s Q1 2005 earnings announcement, the company announced an expectation that network operations revenues would surpass $20 million in Q2 2005. The revenue shortfall to this guidance was primarily due to a temporary slowdown in the building of the Niagara Regional Broadband Network due to some design changes, said the company.
Communications services (a division which includes cable gear supplier White Radio) revenue was $12.4 million, down $2.7 million or 17.9% from the previous year. The decline resulted primarily from decreased sales volume of low margin discounted products, a practice the company announced would be significantly reduced in its Q1 2005 earnings announcement.
Network Operations represented 61% of Cygnal’s total revenues in the quarter, compared to 49.2% in Q2 2004. Communications services represented 39% of total revenues, compared to 50.8% a year earlier.
Gross profit was $6.9 million in the second quarter of 2005, an increase of $1.3 million from a year earlier. As a percentage of revenue, gross profit was 21.8%, up from 18.7% last year. The increase in gross margin is primarily due to the changing revenue mix, as network operations revenues, which increased as a percentage of the company’s total revenues, experience higher margins than communications services.
Cygnal expects financial performance the rest of the way in 2005 to improve relative to the first half of 2005. The company is forecasting full year 2005 revenue to be in a range of $130 to $132 million. Incremental revenue from unusually large new projects could add up to an additional $8 million to revenue this year. This revenue estimate represents a significant adjustment from previous guidance of $142 to $148 million.
The Company expects network operations revenue to be in a range of $80 to $81 million this year as compared to total segment revenue of $74 million in 2004. Cygnal expects communications services revenue to be in a range of $50 to $51 million this year as compared to total segment revenue of $66 million in 2004, for reasons stated above.
Excluding one-time costs that may arise from the execution of productivity programs, the Company expects that EBITDA will be positive for the last six months of 2005. Based on the revenue guidance provided, the company anticipates recording a net loss in fiscal 2005. Additional revenue from large projects could increase profitability beyond these levels, it said.
